2. What is the conversationalapproach? Emphasizes the value of inquiry and curiosity Technical and informal aspects both critical Financial information should drive discussion Peer-to-peer sharing of information improves oversight copyright 2011, Robert P. Seestadt CPA
3. Current Stateof Nonprofit Finance Nonprofit finance fund 2010 survey: 30% of nonprofits have 0-1 month operating cash on hand 39% looking for tools to communicate with their board 76% of organizations recently prepared budget scenarios / projections Source: www.nonprofitfinancefund.org 2010 survey copyright 2011, Robert P. Seestadt CPA
4. Finding the right oversight balance âWhat happened to the meeting cookies? The Goldilocks ChallengeâŠhow much is just right? âhow much did we spend on pencils?â Not engaged Micromanager copyright 2011, Robert P. Seestadt CPA Discussion: How to get the board âon boardâ
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6. Most recent financial results are better than plan
7. We have âsignificant deficienciesâ in our internal controls
8. Our financial model is adjustable to the amount of revenue we have
9. We consider reasonable âworst case scenariosâ in the budget processcopyright 2011, Robert P. Seestadt CPA
11. Financial communication styles vary copyright 2011, Robert P. Seestadt CPA âAs you can see by the attached statement of financial position, unrestricted net assets after subtracting equity in fixed assets remains a negative numberâ âWeâre brokeâ Executive Director Accountant âLiquidity continues to be a concernâ CFO
12. Some terms worth knowing Assets Liabilities Net assets Capital Revenue (âincomeâ) Temporarily restricted revenues Endowment Board designations copyright 2011, Robert P. Seestadt CPA
13. The difference between Capitaland Income To understand the financial picture, you need to appreciate the difference between Capital and Income copyright 2011, Robert P. Seestadt CPA
14. What is Capital? definition: Cash or goods used to generate revenue through investment âAssetsâCash, invest. Pledges (Liquid assets) copyright 2011, Robert P. Seestadt CPA Fixed Assets, Building, property, equipment collections
15. Income: Performance over time Income (ârevenuesâ) Unrestricted, temporarily restricted, permanently restricted During a period of time PERFORMANCE copyright 2011, Robert P. Seestadt CPA
16. Oversight Tip Create the right âTone at the Topâ copyright 2011, Robert P. Seestadt CPA
17. What is Toneat the Top? Control Environment copyright 2011, Robert P. Seestadt CPA
18. Ways to create Toneat the Top? Take board role seriously Be engaged during and between meetings Require accountability Understand internal control structure Ask questionsâŠbe skeptical Be supportive! copyright 2011, Robert P. Seestadt CPA
19. Oversight Tip Ask open-ended questions Listen Show curiosity copyright 2011, Robert P. Seestadt CPA discussion
20. From the Existential CFO If a financial report falls in the woods... ..and no one is there to read it.. copyright 2011, Robert P. Seestadt CPA
23. Others???copyright 2011, Robert P. Seestadt CPA Discussion: What are some good questions to ask? Go to www.cfoshare.com for â25 questions to ask at board meetingsâ
24. Oversight Tip Use a âconversationalâ reporting system copyright 2011, Robert P. Seestadt CPA
26. Nonprofit ABC: CFO ReportFor the quarter ended December 31, 2010 copyright 2011, Robert P. Seestadt CPA
27. Oversight Tip Plan and budget realistically, consider scenarios copyright 2011, Robert P. Seestadt CPA
28. The same budgetâŠor different? copyright 2011, Robert P. Seestadt CPA Net surplus budget for two organizations, one with more âriskâ than the other Budgeted surplus for both nonprofits Discussion: What issues are the same and different for these nonprofits? Worst case, nonprofit A
29. The same budgetâŠor different? copyright 2011, Robert P. Seestadt CPA Net cumulative surplus budget for two organizations, one more volatile than the other Same final net surplus for the year Discussion: What issues are the same and different for these nonprofits?
30. Net assets ok, but what about liquidity? copyright 2011, Robert P. Seestadt CPA
31. The value of financial stress-tests What risks are in our budget? Re-run the budget under âreasonably possibleâ worst-case What is our safety net? Sufficient?? Consider: Past history Revenue assumptions Contingencies Economic conditions Key funders Our Budget (as proposed) Adverse Scenario Inflows $105,000 $85,000 Outflows $100,000 $125,000 Net Inflows (out) $5,000 $(40,000) Cash: Beginning $25,000 $25,000 Cash: After $30,000 $(15,000) copyright 2011, Robert P. Seestadt CPA Go to www.cfoshare.com for a simple stress-testing template
32. Oversight Tip Establish (or at least plan for) âboard designated operating reservesâ copyright 2011, Robert P. Seestadt CPA
33. Planning for Operating Reserves Briefly, the term âoperating reservesâ refers to the portion of âunrestricted net assetsâ that nonprofit boards maintain and/or formally designate or âreserveâ for use in emergencies to sustain financial operations in the unanticipated event of significant unbudgeted increases in operating expenses and/or losses in operating revenues. âUnrestricted net assetsâ is a required line item in the balance sheets of financial statements prepared in accordance with Generally Accepted Accounting Principles (GAAP) and IRS Forms 990 of nonprofit organizations. Excerpted with permission from Operating Reserve Policy Toolkit for Nonprofit Organizations, Sponsored by the National Center for Charitable Statistics, Center on Nonprofits and Philanthropy at the Urban Institute, and United Way Worldwide. http://www.nccs2.org/wiki/images/b/b4/Operating_Reserves_Policy_Toolkit_1st_Ed_2010-09-16.pdf copyright 2011, Robert P. Seestadt CPA discussion
35. Our financial model Are we âBuilt to LastââŠor Built to Bust? Discussion point True cost of Structural Budget Deficiencies copyright 2011, Robert P. Seestadt CPA
48. LOWER LEFT QUADRANT copyright 2011, Robert P. Seestadt CPA
49. Guide to poor oversight Keep policies strategically vague Minutes and meetings are best discussed, not documented Avoid auditor communication at all costs Have a weak, unsupported whistleblower policy Audit committees are only for the big guys Ignore the management letter copyright 2011, Robert P. Seestadt CPA
50. Five take-aways⊠Engage in discussion (peer, staff) Understand financial situation (and actions neededâŠâwhat quadrant are we in?â) Create an effective control environment (Tone at the Top) Consider risks and scenarios (stress-test) Get help when needed (resources, websites, toolkits, discussion groups). Any questions? Feel free to send me an email at rseestadt@cfoshare.com copyright 2011, Robert P. Seestadt CPA Go to www.cfoshare.com for a copy of this presentation along with ideas, resources and regular discussions about nonprofit finance matters