2/27/2014. Introduction to Financial Management Best Practices. Learning Objectives. Donors don t give to groups they don t trust 1

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P R E S E N T E D B Y G L E N D A Y . H I C K S , C P A F O R P A R E N T T O P A R E N T O F G E O R G I A , I N C .

R E G I O N 3 P T A C F E B R U A R Y 2 7 , 2 0 1 4

Introduction to Financial

Management Best

Practices

Learning Objectives

Glenda Y. Hicks, CPA 2014

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Identify policies and internal controls for integrity and accountability

Understand financial tools and infrastructure that support financial soundness

Understand the impact of sound accounting practices on:

Audit requirements

Funder reporting

Managing programs and services efficiently Transparency and accountability

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“Donors don’t give to groups they don’t trust”1

Former Executive Director of the Indiana University Center on Philanthropy and former President of Indiana University Foundation

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Key Players

4

Board

Management

Employees _Employees

Management

Employees

Volunteers

Board

Employees

Volunteers Management

Good Governance

5 Board’s 3 primary roles

Set direction

Ensure resources

Provide oversight

COSO Framework (Committee of Sponsoring Organizations)

Joint initiative Amer. Acctg. Assoc, AICPA, Financial Executives

International, Assoc. of Accountants and Financial Professionals in Business, and Institute of Internal Auditors

Sarbanes-Oxley

Key Risks

Key Risks Additional RisksAdditional Risks

Strategic risk: impact goals and mission

Operational risk: impact ability to manage day-to-day

Financial risk: impact assets

Compliance risk: impact ability to comply with laws and regulations

Revenue risk: diversity of sources

Contractor risk: independent or employee

Interdependency risk: alignments with other organizations

Data risk: information technology

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Types of Risk

2

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Why Controls?

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To assist management in orderly and efficient conduct

of its operations

Adherence to management policies and procedures

Safeguarding of assets

Prevention and detection of fraud and errors

Accuracy and completeness of accounting records.

Timely preparation of reliable financial information

Inspire confidence in the organization by its funding

partners and beneficiaries

Basic Principles

Initiate Authorize Process Record Report

Financial Statements General Ledger

Cash, Fixed Assets, Net Assets, Payables, Revenue, Expense

Summary Journals

Cash receipts, cash disbursements, Payroll, general, fundraising

Source Documents

Vendor invoice, receiving report, pledge form, time sheet, Grant invoice, donation check

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Federal Guidance

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Federal grant compliance and single audit (OMB A-133: Audits of State & Local Governments and Nonprofits)

Expenditures over $500,000

Cost allocation plans (OMB A-122: Cost Principles for Nonprofits)

Allowable costs Administrative overhead

Administrative requirements for grants and agreements (OMB A-110)

Financial mgt., property stnds., procurement, reports, etc.

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COSO (www.coso.org)

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Various guides (Framework, Monitoring) sold through AICPA from $35 to $90

Defines internal control as “…a process effected by an entity’s board of directors, management and other personnel, designed to provide reasonable assurance regarding achievement of objectives in the following categories:

Effectiveness and efficiency of operations Reliability of financial reporting

Compliancewith applicable laws and regulations”

Internal Control

11 Is a process

Effectiveness is a state or condition Varies by organization size

Can be more or less formal/structured depending

Definitions

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Control environment-tone, values, integrity, philosophy, skills training, authority, ethics, responsibility

Risk assessment-internal and external mgt. of desired objectives (Spreadsheet)

Control Activities-policies, procedures, authorizations, reconciliations, verifications, security (Checklist)

Information & Communication-identify, capture, communicate, internal and external info., timely, open and honest, good and bad news

Monitoring-assess quality over time, evaluate, supervision

Key Control Terms: efficient, effective, safeguard,

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Inherent Risks

13 Human error

Collusion

Management Override Changing Conditions

• As separation of duties becomes less possible, more emphasis must be placed

on:

Review of Supporting Documentation

Limiting access to facilities/assets

Transaction Authorization

Department Reconciliation

Mandatory vacations

Use of bonded external service providers, especially janitorial & security

Background checks, criminal history review

Strong accounting system

Use of board members

Use of administrative staff and other department staff

Considerations for Limited Staff

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Sarbanes-Oxley

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Whistleblower policy

Illegal to punish whistleblowers in any manner

Criminal penalties for retaliation

Correct problems quickly

Anonymous reporting

Complaint procedures

Document Destruction (Records and Retention Policy)

It is a crime to alter, cover up, falsify or destroy any document (or persuade someone else to do so) to prevent use in an official proceeding

Policy:

Hardcopy

E-files

Voicemail Back-up procedures Archiving

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Best Practices

16 Accounting policy and

procedure manual

Budget

Budget vs. Actual

Dashboard reports

Segregation of duties

Conflict of interest policy

Whistleblower policy

Document retention and destruction policy

Sufficient knowledge, training, and experience

Cross departmental orientations

Authorizations

Reviews

Periodic verifications of results

Reconciliation of balances

Physical security of assets

Computer and program controls (access, changes, exception reporting)

Supervision commensurate with competence

Regular review of financial reports

Monthly financial statements

Impact of Sound Accounting Practices

17 Audit requirements

Clean opinion (unqualified—present fairly) Qualified-except for this one thing

Adverse-significant exception

Disclaimer-cannot opine

Management letter comments

SAS 115 “Communicating Internal Control Related Matters Identified in an Audit”

Must be in writing to those charged with governance

Impact of Sound Accounting Practices

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Cost and timeliness of engagement

Less risk

less extensive testing

faster turnaround

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Impact of Sound Accounting Practices

19 Funder Reporting

Repeat funding New funding

Increased funding Confidence/Trust

Impact of Sound Accounting Practices

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Managing programs and services efficiently Accurate information for decision making

Timely information for decision making

Program specific fundraising needs

Drive the fundraising plan

Cost intensive programs and services

Eliminate/Consolidate/Collaborate

Mission accomplished reporting

Impact of Sound Accounting Practices

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Transparency and Accountability Confidence/Trust

Increased giving Increased grants

Increased visibility and improved reputation Readily available statistical information

Proposals

Inquiries

Compliance reporting

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Impact of Sound Accounting Practices

22 Transparency, continued

Readily understood as to what you do and what you do with

the money

Data for comparability with peers

The Nonprofit Trinity

23 Accountability—Do you know?

Transparency—Are you letting us know?

Compliance—Can we trust you?

Helpful Websites

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Georgia Center for Nonprofits, www.gcn.org(or your state’s equivalent)

National Center for Charitable Statistics, www.nccs.urban.org

Charity Navigator, www.charitynavigator.org

Independent Sector, www.independent.org

The Nonprofit Times, www.thenonprofittimes.com

Internal Revenue Service, http://www.irs.gov/Charities-&-Non-Profits

BoardSource publications, www.boardsource.org

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Resources

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The AICPA Audit Committee Toolkit: Not-for-Profit Organizations ($25 - $31.25)

www.cpa2biz.com/publications(keyword: audit committee toolkit)

The National Council of Nonprofits

http://www.councilofnonprofits.org/resources/resources -topic/boards-governance/whistleblower-protection-policies

Resource Center for Good Governance and Ethical Practice www.independentsector.org

Boardsource www.boardsource.orgThe Nonprofit Policy Sampler ($13.25 - $104.99) (select Learning Center & Store, then Publications)

ENDNOTES

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1

_{Tempel, E. R. (1999). Let’s Make Nonprofit}

Operations Transparent to the Public

. IDA

Member News

2_{Accounting Management Solutions, Inc. (2012).}

Nonprofit risk management best practices. Retrieved from

http://www.amsolutions.net/articles/nonprofit-risk-management-best-practices