Don’t lose sight of your mission by losing control of your finances! A nonprofit organization’s financial health depends on precise execution of the key components of an annual operating cycle. This session will leave you with a comprehensive grasp of how to develop your nonprofit organization’s financial health, thus supporting the life of your mission.

1. WELCOME!
Achieving Nonprofit Financial Health,
featuring Cheryl Black

2. Our Speaker
Cheryl Black
Chief Financial Officer
Texas Association of Nonprofits
Cheryl has 29 years of experience working within
nonprofit organizations as a volunteer, board
member, fund-raiser, donor, independent auditor,
consultant, seminar speaker, controller and
executive director.
In addition to working at TANO Cheryl serves on the
Audit Review Committee for United Way Capital
Area and as grant reviewer for the AmeriCorps State
Grant Competition.
Cheryl has a B. S. in Business Administration from
the University of Nebraska - Kearney and a State of
Nebraska CPA certificate.
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3. Agenda
– Differences between non-profit and for-profit
organizations – FASB requirements
– Setting up systems and getting started
• Chart of accounts
• Accounting software
• Basic financial statements
• Establishing good internal controls

4. • Annual Operating Cycle
– Budget preparation
– Monthly Activities
• Closing the books
• Working with the Board and other departments
• Investment and Cash Management
– Year end closing
• Audit, Review or Compilation
• Management Letter
– Reporting requirements
• Form 990 Tax return
• Single Audit A-133
• Payroll reports

5. Differences Between
Non-profit
&
For-profit Organizations

6. • FASB 117 - “Financial Statement of Non-
Profit Organization”
– Statement of Financial Position
– Statement of Activities
– Statement of Functional Expenses
– Statement of Cash Flows
– Financial Statement Disclosures
– Accrual Basis of Accounting

7. • Disclose
– In Statement of Activities or
– In the footnotes
• Functional Classifications
– Program services
– Management and general
– Fundraising

8. • Definitions
– Accrual
– Cash
– Modified Cash
• Factors to consider when choosing
– Few payables or receivables
– Expertise and time constraints on bookkeeping staff
– Budget size

9. • FASB 116 - “Accounting for Contributions
Received and Contributions Made”
– Recognized as revenues in period received
– Recorded as either restricted or unrestricted revenue
(donor imposed conditions)

10. • In-Kind Contributions
– Donor sets value, not non-profit
– Shows true cost to operate the organization
– IRS does not allow in-kind services or facility rental
to be deducted from Form 990 tax return

11. • Special Events and Membership Dues
– Fund-raiser attendees often receive a tangible benefit in
return
– Membership dues may entitle individuals to benefits
– The portion of ticket or dues which represents the fair
market value of the benefit received is NOT tax deductible
– Minimal benefits are excluded
– Non-profit required to send letters to donors re: amount
that may be taken as tax deduction

12. • IRS Publication 1771 - “Charitable
Contributions - Substantiation and
Disclosure Requirements”

13. • FASB 124 - “Accounting for Certain Investments
Held by Not-for-Profit Organizations”
– Investments be reported at fair market value
– Gains and losses be included in a statement of
activities

14. • FASB 93 - “Recognition of Depreciation by Not-
for-Profit Organizations”
– Recognize the cost of using up long-lived tangible
assets (depreciation)
– Exceptions
• Certain works for art
• Certain historical treasures

15. Setting up Systems
and
Getting Started

16. Chart of Accounts - Design Planning
• A tool used to code all the transactions that will be
recorded in the accounting records.
• The accounts set up here are then consolidated
into the financial statement presentation.
• If not well thought out, the financial statements will
be less effective as a management tool in making
decisions about the future of the organization.

17. Chart of Accounts - Design Planning
– Decisions to make –
• Unified Chart of Accounts (UCOA)
• Numbered accounts
– Usually follow standard industry practice
» 100 Assets
» 200 Liabilities
» 300 Net Assets (Fund Balance)
» 400 Revenue
» 500+ Expenses

18. • Overall Considerations
– Most important features
– Cost
– Off the shelf or customized
– Number of modules
– Training of accounting staff
– Maintenance contract
– Specialized non-profit packages vs. general accounting
packages
– Compatible with rest of applications

19. Basic Financial Statements
Statement of Activities
• Commonly known as the “Income Statement”
• Is the cumulative total of revenue and expense
activity for the current annual operating cycle
– Calendar year
– Fiscal year
• Management focuses on this statement more than
the Statement of Financial Position (Balance Sheet)

20. Basic Financial Statements
Statement of Functional Expenses
• Is the breakdown of “natural” expenses into
“functional” categories.
– Admin and general (or overhead)
– Programming
– Fundraising
• Is closely linked to the Statement of Activities
(Income Statement)
• Can be a supplement report or an audit footnote

21. Basic Financial Statements
Statement of Financial Position
• Commonly known as the “Balance Sheet”
• Is a snapshot of the financial position of the organization on a
certain day
• Consists of three main categories
– Assets (what you own)
– Liabilities (what you owe)
– Net Assets (what the organization is worth)
• Independent auditors focus on this statement more than the
Statement of Activities (Income Statement)

22. Basic Financial Statements
Statement of Cash Flows
• Commonly known as the “Change in Financial Position”
• Breaks down the use of cash into three different activities
– Operations
– Investing
– Financing
• Lets the reader know exactly where the organization
received and spent cash during the period

23. Internal Controls – Overview
• Main objectives include -
– Safeguarding assets
– Promoting efficiency in operations
– Enhancing reliability and completeness of
financial reporting
– Minimizing the risk of misuse or abuse of the
organization’s resources

24. Internal Controls – Overview (cont’d.)
• Nonprofits at greater risk for fraud?
– An atmosphere of trust
– Many cash donations (difficult to control)
– Limited availability of qualified staffing resources
(salary constraints)
– Mixture of volunteers and employees with lack of
business/financial experience involved in
operations
– Volunteer Board of Directors (decision makers)

25. • Segregation of Duties
– No financial transaction is handled by only
one person

26. • Policies and Procedures
– Established way of doing business that ensures public
confidence
– Maintains integrity of your organization and its assets
– But does not inhibit your ability to get your daily work
done
– Assists with training new employees
– Prevents fraud

27. Annual Operating Cycle

28. • Overall significance
– Used to monitor success of goals
– Used to show strength of plan
• Detailed Plan
– Choose format and tool (how)
– Choose level of staff/Board participation (who)
– Commit to a time line for completion (when)

29. • Detailed Process
– Begin with upcoming year goals
– Translate those into resources needed and
expense outlays to carry them out
– Balanced budget - yes or no
• Board policy in place to be followed
• Deficit
• Surplus
– Review during the operating year

30. • Generating monthly financial statements
– Policy for month-end closing
• Working with others
– Board and committees
– Other departments within organization

31. • Investment management
– Investment policy
– Investment spending policy
• Cash management
– Cash flow shortage policy
– Cash flow surplus policy

32. • Compilation
– Information just “compiled” by outside accounting firm
– Uses standard form of financial statement
presentation
– Provides no opinion or assurance that the information
is reliable
– Cost is minimal

33. • Review
– Limited examination of the organization’s financial
statements
– Limited testing
– Provides limited assurance on the reliability of the
information presented
– Cost is much less than audit

34. • Audit
– Process for testing the accuracy and completeness
of information presented in the organization’s
financial statements
– Completed by independent CPA’s
– An “opinion” issued on how fairly the financial
position has been presented
– If financial statements comply with GAAP

35. • Audit report - consists of
– Auditors opinion letter (qualified or unqualified)
– Required Financial Statements
– Required Notes to the Financial Statements
• Management letter
– Informs organization of ways to improve their
internal control processes and day to day
management

36. Form 990 Reporting Overview
• Purpose for filing with IRS
– Required information for statistics and tracking – not a
“tax return”
– Have information available for public inspection
– May be primary or only source of information available to
the public
– IRS cleaning up their database
• When to file
– 15th day of 5th month after close of fiscal year

37. Form 990 Reporting Overview
Who Must File
2007-2009 Rules
• Organizations with gross
Old Rules receipts <$25K per year –
• Organizations with gross
receipts <$25K per year – 2010 Rules
• No filing requirements • Organizations with gross
receipts <$50K per year –
• Required to file electronic
notice
• “e-Postcard” or Form 990-N

38. Changes Since 2007
• Form 990-N
– Filing
• Log in to www.irs.gov/eo
• Click on “Annual Electronic Filing Requirement
for Small Exempt Organizations – Form 990-N
(e-Postcard)
– Failure to file for three consecutive years will
result in revocation of tax exempt status

39. Old Rules 2008 Rules
• Organizations with • Organizations with
– Gross receipts between $25K – Gross receipts >$25K but <$l M
and $100K
– Total assets <$2.5 M
– Total assets <$250K at year
• File Form 990-EZ
end
• Can elect to file Form 990
• File Form 990-EZ
and schedules
• Could elect to file Form 990

40. Changes Since 2007 (cont’d.)
• Form 990-EZ
– Has not been redesigned, but changes have
been made
– Review Schedules A, B, C, E, G and L and
determine if they apply to your organization

41. Old Rules 2008 Rules
• Organizations with • Organizations with
– Gross receipts > $100K – Gross receipts >$l M
– Total assets >$250K at year – Total assets >$2.5 M
end
• Required to file Form 990
• Required to file Form 990

42. 2009 Rules
• Organizations with
Old Rules – Gross receipts >$500K
• Organizations with – Total assets >$1.25 M
– Gross receipts > $100K • Required to file Form 990
– Total assets >$250K at year end
• Required to file Form 990 2010 Rules
• Organizations with
– Gross receipts >$200K
– Total assets >$500K
• Required to file Form 990

43. Changes Since 2007 (cont’d.)
• Form 990
– Revised for fiscal years beginning in 2008
– Last revision was in 1979
– More questions about governance
– Instructions include “Sequencing List”
– Format
• Core form with eleven parts
– Part IV – Checklist of Required Schedules
• Sixteen schedules

44. Form 990 List of Schedules
• A-Public Charity Status and • I-Grants and Other Assistance to Orgs,
Public Support Gov’t., and Individuals
• B-Schedule of Contributors • J-Compensation Info
• C-Political Campaign and • K-Supplemental Information for Tax-
Lobbying Activities
Exempt Bonds
• D-Supplemental Financial
Statements • L-Transactions with Interested Persons
• E-Schools • M-Non-Cash Contributions
• F-Statement of Activities • N-Liquidation, Termination, Dissolution
Outside the US
• O-supplemental Information to Form 990
• G-Supplemental Info Regarding
Fundraising or Gaming • R-Related Organizations and Unrelated
Activities Partnerships
• H-Hospitals

45. • Circular A-133 single audit report
– $500,000 or more in federal awards expended in
any fiscal year
– Audited annually
– Available for public inspection
– Auditee duties
• Schedule of Expenditures of Federal Awards
• Maintain internal controls

46. • Payroll reporting
– Quarterly (941) reports
– Annual (940) reports
– W-2’s
– 1099’s

47. • Unrelated Business Income Tax (UBIT)
– Regularly carries on a trade or business
– Not substantially related to its exempt
purpose
– IRS Publication 598 - Tax on Unrelated
Business Income of Exempt
Organizations

48. Please type in chat window online.

49. Contact Information
• Connect with the Texas Association of Nonprofit Organization’s
at www.tano.org . You can also contact Cheryl via email at
cheryl<at>tano<dot> com.
• Connect with Sage
– Email nps <at> sage <dot> com
– Download the presentation and handouts from
www.slideshare.net/sagenonprofit
– Read our blog, http://www.SageWords.net.
– Like us on Facebook,
http://www.facebook.com/sagenonprofit
– Follow us on Twitter, http://www.twitter.com/sagenonprofit
– Join the discussion in our group on LinkedIn.
– Watch and follow on YouTube,
http://www.youtube.com/user/SageNonprofit
– Pin with us on www.Pinterest.com/SageNonprofit
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