Transcript Talking Numbers: What Non-Finance People Need to Know

Fiscal and Compliance Monitoring
Training for City Contractors
February 2, 2010
Marissa M. Tirona
Project Director
Agenda
9:00 a.m. to 9:30 a.m.
Introductions and Agenda Review
9:30 a.m. to 10:45 a.m.
Overview of the Standard Monitoring Form - Fiscal
10:45 a.m. to 11:00 a.m.
BREAK
11:00 a.m. to 11:45 a.m.
Continue Overview of the Standard Monitoring Form – Fiscal
11:45 a.m. to 12:15 p.m.
Overview of the Standard Monitoring Form - Compliance
12:15 p.m. to 12:30 p.m.
Wrap Up
Learning Objectives

Review the fiscal and compliance standard monitoring form

Learn more about what City monitors will be looking for during
site visits
Section 1
Agency-wide Budget, Cost Allocation
Procedures and Invoices
Related Compliance Form Boxes
1A. Agency-wide Budget
1B. Cost Allocation Procedures
a. Current (fiscal or calendar year)
b. Shows income and expense by funding source or program
a. Process for cost allocation procedures and plan for shared costs
is documented in a written narrative or in the footnotes of the
current approved agency-wide budget
c. Shows allocation of shared and indirect costs by funding source
or program
b. Process for allocating shared program costs is consistent and
reasonable
d. Shows fundraising separate from program expense
c. Process for cost allocation procedures and plan for indirect
costs is documented in a written narrative or in the footnotes
of the current approved agency-wide budget
e. Clearly identifies all funding sources
f. 15% of funding from non-City sources, (pilot element)
d. Process for allocating indirect costs is consistent and
reasonable
Related Compliance Form Boxes
1G. Invoices
Expenses:
a. Expenses tested on invoices have supporting documentation: credit card charges and/or petty cash expenditures are
all documented with an original receipt and reasonably tie to the cost allocation plan.
b. Contractor follows its policies for writing checks, credit card use, petty cash use, and/or reimbursement for expenses
tested on invoices
c. Tested expenses on invoices appear to be reasonably associated with the program budget
If Units of service contract (usually DPH contracts only):
d. Units of service provided are documented and agree with invoices
If payments to subcontractors are included on invoices:
e. Subcontractor authorized by contract
f. Contractor paid its subcontractors’ invoices per the schedule established in the subcontracting agreement and/or prior
to receiving City reimbursement for the services delivered
g. Subcontractor invoices show basis for work billed as performed (units of service, hours, reimbursable costs)
The Organizational Budget:
Key Performance Points






Current budget?
Budgeted by cost centers?
Includes projections and variances?
Funding sources included?
Appropriate cost allocations?
15% of funding from non-City sources?
Sample Unrestricted Budget with
Shared Costs Allocated


This budget format is akin to a high-level
“working” budget
Often not the format presented to an
organization’s board for final approval
(generally, the board does not get involved
in the details of an organization’s cost
allocation methodology)
SAMPLE UNRESTRICTED BUDGET WITH SHARED COSTS ALLOCATED
2008-09 Budget: First Draft (summarized)
As for May 29, 2008
Program Activities
Contributions
Fundraising events - net
Foundation grants
Total support
Supporting Activities
Shelter
Services
Support
Groups
Administration
Fundraising
-
-
-
-
10,000
10,000
Shared
Costs
80,000
135,000
125,000
340,000
Total
2007-08
-
80,000
135,000
125,000
340,000
58,000
125,000
115,000
298,000
-
815,009
10,000
825,009
-
450,000
1,615,009
770,467
5,750
776,217
453,000
1,527,217
Government contracts
Interest and dividends
Unrealized gain (loss) on investments
Total revenue
815,009
815,009
Net assets released from restriction
Total income
815,009
445,000
445,000
10,000
5,000
345,000
Personnel expenses
Non-personnel expenses
329,852
416,750
214,881
129,300
117,365
28,100
127,339
44,750
179,161
224,113
968,598
843,013
973,204
505,507
Total specific costs
746,602
344,181
145,465
172,089
403,274
1,811,611
1,478,711
See 1 Note Below
Allocation of shared costs
181,473
125,015
44,360
52,426
(403,274)
-
-
Expenses before overhead/indirect
928,075
469,196
189,825
224,514
-
(113,066)
(24,196)
(179,825)
120,486
-
57%
108,200
29%
55,049
-100%
(189,825)
Change before overhead/indirect
% of direct costs See Note 2 Below
Allocation of indirect costs
Total expenses
Change in net assets
1,036,275
(221,266)
524,245
(79,245)
-
Total
2008-09
14%
26,576
0%
-
-
251,090
-
10,000
93,910
-
1,811,611
(196,602)
1,478,711
48,507
(0)
(0)
-
1,811,610
(196,601)
1,478,710
48,507
Sample Program by Source Budget



Excellent supporting documentation for
overall budget
Helps in conversations you have with City
staff regarding how the organizational
budget was developed
It’s another way to check invoicing – does
the invoice accurately reflect the
organizational budget and the program
budget?
SAMPLE PROGRAM BY SOURCE BUDGET SHOWING WHO IS FUNDING BUDGET
Shelter Program
Program
Total
DCYF
First 5
Funder C Funder D
Salaries
Payroll Taxes
Training
Personnel expense
295,920
30,332
3,600
329,852
65,000
6,500
1,800
73,300
105,000
10,500
1,800
117,300
-
Clients, direct assistance
Conferences & Meetings (see note)
Dues and Subscriptions
Other Professional Fees
Printing & Copying
Supplies
Travel
Non-personnel expense
375,000
1,000
1,000
20,000
1,000
15,000
3,750
416,750
15,000
250
250
5,000
1,250
21,750
25,000
1,000
250
15,000
250
8,000
1,250
50,750
180,259
-
Liability Insurance
Occupancy
Utilities
Depreciation
Other shared costs
Shared Costs
12,000
88,000
22,000
10,000
49,473
181,473
3,000
20,000
5,000
2,500
10,000
40,500
Overhead/aka Indirect Costs
108,200
1,036,275
Total expenses
207,500
20,750
3,600
231,850
88,420
9,582
98,002
180,259
500
2,000
1,250
73,500
285,259
5,250
1,000
15,000
1,000
15,000
3,750
326,259
89,741
(4,250)
5,000
90,491
3,000
20,000
5,000
2,500
10,000
40,500
3,000
25,000
5,000
2,500
10,000
45,500
3,000
23,000
5,000
2,500
10,000
43,500
12,000
88,000
20,000
10,000
40,000
170,000
2,000
9,473
11,473
14,950
21,950
25,000
25,000
86,900
21,300
150,500
230,500
250,759
183,250
815,009
221,266
-
37,500
3,750
Funding
Total
(Over)
Under
Funded
41,250
65,000
4,250
500
Definitions



Direct: Program staff
salaries, materials and
supplies for programs,
Contractors’ fees
Indirect: Portion of
Executive Director’s salary,
Finance staff salary
Shared: Office manager’s
salary, rent, telephone,
postage
Possible Allocation Methodologies




A percentage determined by dividing the number of FTEs of each
activity by the total number of FTEs from all the activities
(excluding any whose salaries are treated as common costs).
A percentage determined by dividing the amount of the payroll
expenses of each activity by the payroll expenses of all the
activities (excluding common).
A percentage determined by dividing the square footage used by
each activity by the total agency square footage.
A percentage determined by dividing the amount of the specific
expenses of each activity by the total specific expenses of the
organization.
Common Allocation Mistakes



Failure to categorize
Failure to document
Failure to apply consistently
Your Turn
“Draft Budget”
Assessment Exercise
DRAFT BUDGET
2008-09 Budget
As of May 29, 2008
Program
Total Support
Administration
Fundraising
Total
0
0
340,000
340,000
Total Revenue
1,260,000
10,000
0
1,270,000
Total Income
1,260,000
10,000
340,000
1,610,000
Personnel expenses
544,733
117,365
127,339
789,437
Non-personnel expenses
546,050
28,100
44,750
618,900
1,090,783
145,465
172,089
1,408,337
86%
-100%
14%
125,099
(145,465)
20,366
1,215,882
0
192,455
Total specific costs
% of direct costs
Allocation of indirect costs
Total expenses
1,408,337
Issues Identified – “Draft Budget”

The budget does not delineate the income by specific streams, e.g.,
government contracts, interest and dividends, etc.

The budget does not delineate specific City funding sources, e.g., DPH,
MOCI, etc.

The budget does not include any detail regarding allocation of shared
costs or indirect costs.

The budget does not show income and expense by funding source or
specific program.

The budget does not show the difference between total income and
total expenses.
Section 2
Financial Reports, Audited Financial
Statements and Tax Forms
Related Compliance Form Boxes
1C. Audited Financial Statements
For All Organizations:
a. Complete: all sections and statements included; opinion and other audit letters are signed
b. Unqualified opinion
For Organizations which received a Management Letter:
c. Management letter has been signed by the audit firm
d. For any prior year findings, the Contractor has provided you with a reasonable explanation of how the Contractor
has corrected all the findings
For Organizations which had A-133 Audit:
e. No material weaknesses mentioned
f. No current findings and/or questioned costs
g. For any prior year findings, the Contractor has provided you with a reasonable explanation of how the Contractor
has corrected all the findings
1D. Tax Form
a. Federal 990 return filed or extended and submitted on time
Related Compliance Form Boxes
1F. Financial Reports
Balance Sheet (a.k.a. Statement of Financial Position):
a. Current (as of the last four months, at least)
b. Overall cash balance is positive
c. Current assets exceed current liabilities by 2 to 1 (pilot element)
d. Current bank reconciliation (as of the last four months, at least)
Profit and Loss Statement (a.k.a. Statement of Activity):
e. Current (as of the last four months, at least)
f. Shows year-to-date (YTD) income and expense by program/ contract/ funding source, including indirect costs
g. Year-to-date net income is either a positive number or the Contractor provides a sound explanation of how it will
be positive by the end of the fiscal year
Statement of Financial Position







Commonly called “balance sheet”
A snapshot as of date on top of report
Never gets zeroed out: no “starting over”
Assets = own/have title to
Liabilities = owe
Net Assets = the difference between the two
Remember what “current” means: within a year
Statement of Financial Position
As of March 31, 2008
Current
YTD
Previous
Year End
Assets
Cash and equivalents
Investments
Contracts receivable
Grants receivable
Prepaid expenses
Total current assets
161,270
106,361
144,567
315,000
11,942
739,140
551,584
100,000
177,674
124,000
15,065
968,323
180,000
32,750
48,955
19,771
281,476
(102,419)
179,057
180,000
32,750
48,955
14,725
276,430
(73,325)
203,105
3,589
3,589
3,589
3,589
921,786
1,175,017
12,514
9,897
14,259
36,670
48,990
6,941
13,457
69,388
Note payable (leasehold improvements)
Less current portion of long-term debt
99,398
(14,259)
109,392
(13,457)
Total liabilities
121,809
165,323
Unrestricted net assets
Temporarily restricted net assets
Permanently restricted net assets
Total net assets
275,308
419,669
105,000
799,977
283,690
326,004
100,000
709,694
Total liabilities and net assets
921,786
875,017
Buildings and improvements
Vehicles
Furniture and fixtures
Equipment
Total property and equipment
Less accumulated depreciation
Net property and equipment
Long-term deposits
Total non-current assets
Total assets
Liabilities and Net Assets
Accounts payable
Accrued vacation
Current portion of long-term debt
Total current liabilities
Financial Ratios

Current ratio – your ability to meet current obligations, like paying bills and making
payroll
– Healthy ratio for most organization is 2.0 to 4.0 – essentially means that for
every dollar you owe you have double to quadruple the financial means to pay
off your short-term debts

Quick ratio: your ability to meet your obligations with your most liquid of assets –
generally, cash and short-term investments
– Note that if you wanted to be really conservative, use cash and equivalents line
only

Reserve – unrestricted money that your org has accumulated over time beyond
what it needs to pay your bills and other commitments – your rainy day fund
– Generally – nonprofits should strive for 3 – 6 months reserve
– In calculating your reserve, we use only the unrestricted net assets
and exclude those net assets you have committed to spend
– Can determine typical month’s expenses from your annual budget or
from your statement of activities
Financial Ratios
Current Ratio:
Total Current Assets
Total Current Liabilities
Quick Ratio :
Total Cash and Investments
Total Current Liabilities
Liquid Reserve Ratio: Unrestricted Net Assets - Total Fixed Assets
Typical Monthly Expenses
Your Turn
“Great Organization:
Statement of Financial
Position” Assessment
Exercise
Great Organization
Statement of Financial Position
From January 1, 2008 to June 4, 2008
Current
YTD
Previous
Year End
Assets
Cash and equivalents
Investments
Contracts receivable
Grants receivable
Prepaid expenses
Total current assets
Buildings and improvements
Vehicles
Furniture and fixtures
Equipment
Total property and equipment
Less accumulated depreciation
Net property and equipment
Long-term deposits
Total non-current assets
35,000
12,000
15,000
115,000
37,251
214,251
155,683
100,000
177,674
124,000
15,065
572,422
385,000
32,750
48,956
19,771
486,477
(101,483)
384,994
175,000
32,750
48,956
18,559
275,265
(76,259)
199,006
3,589
3,589
3,589
3,589
602,834
775,017
Accounts payable
Accrued vacation
Current portion of long-term debt
Total current liabilities
149,584
9,897
14,259
173,740
48,990
6,941
13,457
69,388
Note payable (leasehold improvements)
Less current portion of long-term debt
Total liabilities
99,398
(14,259)
258,879
109,392
(13,457)
165,323
Unrestricted net assets
Temporarily restricted net assets
Total net assets
89,555
300,514
390,069
183,690
326,004
509,694
Total liabilities and net assets
648,948
675,017
Total assets
Liabilities and Net Assets
Issues Identified – “Great Organization:
Statement of Financial Position”

The statement does not balance, i.e. total liabilities + net assets do not equal total assets.

The statement does not include permanently restricted net assets as part of its net assets
balance.

The statement’s time period is not from the inception of the organization to present (i.e., as of
June 4, 2008), but for a 5 month timeframe only.

In assessing the organization’s financial health, participants should note that:
–
The organization’s quick ratio is less than 1 (indicates possible liquidity problem).
–
The organization’s fixed assets comprise the majority of the organization’s total assets
(indicates possible liquidity problem).
–
The organization’s investments have decreased compared to previous year.
–
Accounts payable is very large in relationship to the accounts payable line from previous
year end – is the organization behind in paying its bills?
–
The low contracts receivable suggests that the organization may not be invoicing in a
timely manner.
–
There is no accrued liabilities line in the current liabilities section, which is where unpaid
payroll and payroll taxes should be reported.
Statement of Activities




Commonly called “income statement” or “P&L”
Reports on the fiscal year
Does get zeroed out each new year
Shows flows of restricted contributions in
aggregate, not by funder
SAMPLE BUDGET TO ACTUAL INCOME STATEMENT (Statement of Financial Activity)
Budgeted Statement of Activity - Unrestricted
For the Nine Months Ending March 31, 2008
YTD
Actual
YTD
Budget
Variance
B/(W)
Annual
Budget
$
Remaining
%
Remaining
Contributions
Fundraising events - net
Foundation grants
Total support
23,200
92,430
92,000
207,630
43,500
93,750
86,250
223,500
(20,300)
(1,320)
5,750
(15,870)
58,000
125,000
115,000
298,000
Government contracts
Interest and dividends
Unrealized gain (loss) on investments
Total revenue
574,382
3,761
(2,400)
575,743
577,850
4,313
582,163
(3,468)
(552)
(2,400)
(6,420)
770,467
5,750
776,217
196,085
1,989
2,400 n/a
200,474
25%
35%
Net assets released from restriction
322,335
339,750
(17,415)
453,000
130,665
29%
Total income
1,105,708
1,145,413
(39,705)
1,527,217
421,509
28%
Shelter Services
Support Groups
Administration
Fundraising
Total expenses
505,866
277,286
167,168
163,769
1,114,090
502,478
288,695
156,025
161,834
1,109,032
(3,388)
11,408
(11,144)
(1,935)
(5,058)
669,971
384,926
208,033
215,779
1,478,709
164,105
107,640
40,865
52,010
364,619
24%
28%
20%
24%
25%
36,381
(44,763)
48,508
56,890
117%
Change in net assets
(8,382)
Beginning net assets
283,690
283,690
-
283,690
Ending net assets
275,308
320,071
(44,763)
332,198
B = Better than budgeted
(W) = Worse than budgeted
34,800
32,570
23,000
90,370
60%
26%
20%
30%
26%
Section 3
Payroll and Timesheets
Related Compliance Form Boxes
1H. Payroll
a. State (DE6) and federal (941) payroll tax returns were filed by the end of the month following the end of the
quarter for monitoring months under review
b. Employees paid with City funds listed on invoices checked in Section 1G above are listed on the DE6 for the
quarter(s) that includes the monitoring months under review
c. Payroll taxes due were actually paid
Timesheets:
d. If employee time is paid by more than one source, it is recorded by funding source or program on timesheets
e. Employee & supervisor signatures on timesheets in ink
f. All changes to timesheet are initialed by supervisor in ink
g. Employees and hours charged to City contracts agree to timesheets and to payroll journals
(Request and review the Contractor’s DE6 and 941 returns, payroll tax verification, bank statements, select
employee timesheets, and payroll register/ journal for the months under review.)
Timesheets: What to Look Out For





Time spent on activity is accurately reflected,
including breaks
Activity is clearly defined
Time is recorded by program or funding
source
Employee’s and supervisor’s signatures
Any changes are initialed by supervisor
Different ways to track time



Daily timesheets
Weekly timesheets
Time studies
Section 4
Fiscal Policies and Procedures
Related Compliance Form Boxes
1E. Fiscal Policies & Procedures
a. Current (updated to reflect prior site visit or audit recommendations)
In writing, contains at a minimum:
b. Internal controls (safeguarding of assets, authorization of transactions, reconciliation of accounting records)
c. Financial reporting
d. Accounts payable
e. Accounts receivable
f. Petty cash
g. Payroll
Your Turn
Internal Controls Quiz
Internal Controls: True/False Quiz

Cash can be received, counted and verified by one employee.


A list of all cash and checks received should be prepared on a weekly
basis.


False – A person independent of the accounting functions should also receive and review
bank statements and cancelled checks.
The person who signs checks should be different from the person who
prints them.


False – the list should be prepared daily, immediately upon receiving cash and checks.
Bank statements and cancelled checks should be received (via mail or
electronically) and reviewed by at least two finance/accounting staff
members.


False – At least two employees should receive, count and verify cash.
True
Payees cannot sign checks which reimburse their own expense reports.

True
Internal Controls: True/False Quiz

The statement of financial position should be reviewed annually by the
board finance committee.


An organization should have a written policy prohibiting against the
issuance of checks payable to “cash.”


False – An organization should have a written policy limiting the amount of money
disbursed from the petty cash fund.
Changes to an employee’s timesheet must be initialed by the employee
and her supervisor.


True
Amounts to be disbursed from petty cash can be decided on a case-bycase basis.


False – The balance sheet should be reviewed on a regular basis.
True
An organization should compare income and expenses by activity with
the approved annual budget.

True
Key Elements of a Fiscal Policies
and Procedures Manual

Internal Controls (safeguarding of assets, authorization of
transactions, reconciliation of accounting records)

Financial Reporting (which reports are required, to whom, and
when)

Accounts Payable (processing of bills to the organization including
credit cards)

Accounts Receivable (process of money coming into the
organization)

Petty cash procedures

Payroll (timesheets, time-studies, payroll process, paying and filing
payroll taxes)

Conflict of Interest Policies (if not included in the organization’s
Personnel Manual)
Section 5
Board Minutes, Board Meetings, Public
Access to Records and Community
Representation on the Board
Related Compliance Form Boxes
2A. Board Minutes
a. Minutes show that if a paid City employee or City commission member is on the Board, he or she did not vote on
items related to City contracts with their affiliated City department (excluding vote on Agency-Wide Budget)
b. Minutes show that if the Executive Director is a member of the Board, he or she is a non-voting member
c. Minutes show current agency-wide budget approved
d. Minutes show that financial reports are shared with the Board on a regular basis
2B. Board Meetings
a. At least two meetings with quorum status are open to the public each year
b. These two meetings are announced to the general public at least 30 days in advance through the SF Public
Library and the Clerk of the Board
Related Compliance Form Boxes
2C. Public Access to Records
a. Procedures for responding to Sunshine Requests from the public within 10 days of request
b. Policies for requests beyond what is “Sunshineable,” including disputes about access to information
2D. Community Representation on Board
a. By-laws include requirements for community representation on Board, or, Contractor makes other efforts to
ensure community representation
Your Turn
“Meeting Minutes”
Assessment Exercise
Board of Directors - Great Organization
Meeting Minutes
January 15, 2009

Attending:
Angela Martin, Kevin Malone, Oscar Martinez, Michael Scott, Stanley Hudson, Kelly Kapoor, Creed
Batton

Absent:
Jim Halpert, Pam Beesly, Dwight Schrute, Andy Bernard

Staff:
Jan Levinson (Executive Director), Darryl Philbin, Toby Flenderson, Holly Flax
Kelly Kapoor called the meeting to order at 4:35 pm. A quorum was determined to be present.
Review of Minutes: Creed Batton moved that minutes be approved. Stanley Hudson seconded. Passed unanimously.
Merger with Good Organization: Angela Martin and Oscar Martinez reported on the merger discussion with Good
Organization held on December 10, 2008. There was discussion that it may take $500,000 to implement the merger, which
includes branding, marketing and collateral.
It was suggested that we contact Phyllis Laplin, Program Officer with City Department A, to request funding in the amount of
$150,000 to help fund the merger process. Michael Scott volunteered to pitch the request to Phyllis, given that his
commission oversees her department. Kevin Malone moved that a request be made to the City. Creed Batton seconded.
Passed unanimously.
Financial Report: Darryl Philbin passed around a slightly revised version of the 2009 budget. He commented that it was a
fairly conservative budget, with revenue projected conservatively. He also passed around the November 2008 Statement of
Financial Position and Statement of Activities.
Meeting adjourned at 6:30 pm.
Minutes submitted by Michael Scott.
Issues Identified – “Meeting
Minutes”

There is no indication of a vote or decision regarding whether Michael
Scott will request funding from the city.

If a vote took place on requesting funding from City Department A, there
is no record of Michael Scott recusing himself because of his role as
commission member for Department A.

Jan Levinson, Executive Director, was present, but the minutes do not
indicate if she maintained status as a non-voting member.

There is no record that the budget was voted on and approved.

The November 2008 Statement of Financial Position and Statement of
Activities were reviewed, but there is no indication the Board approved
them.

Where are December 2008 financial statements, and why weren’t they
reviewed at this meeting?
Section 6
Personnel Policies
Related Compliance Form Boxes
2G. Personnel Policies
a. Written and current personnel/employee manual
b. Evidence that staff were trained regarding personnel policies
c. Documentation of the following is maintained on file:
- Job description
- Employment application or résumé
- Employment confirmation or letter of hire
- Salary information including adjustments
- Verification of employee orientation
- Annual TB clearance (required for DPH contracts, meal, aging and dependent adult, and children’s
services)
- Fingerprinting (required for children’s services)
Evidence of Adequate Training on
Personnel Policies



Signed
acknowledgment of
receipt form
Training calendar
Memorandum
documenting training
Section 7
Subcontracts and Licenses
Related Compliance Form Boxes
2E. Subcontracts
a. Procurement procedures in the Contractor’s fiscal policies and procedures were followed by Contractor to select
subcontractors
b. Legally binding agreements between Contractor and subcontractors are valid and current
c. Contractor regularly monitors fiscal and programmatic performance of subcontractor
2F. Licenses
a. Site licenses required by City contracts are available, verified and current
b. Staff licenses required by City contracts are available, verified and current
Section 8
Emergency Operations Plan and
Americans with Disabilities Act
Related Compliance Form Boxes
2H. Emergency Operations Plan
a. Written emergency operations plan
b. Plan contains contingency planning, including an alternate site, if needed
c. Plan contains business continuity arrangement (pilot)
d. Staff and volunteers were trained within the last year on the emergency plan
e. At least one fire drill and one earthquake drill have been conducted in last year
f. Elevator permit is current (if building owned by the Contractor)
g. All sites have received fire inspections (if required)
2I. Americans with Disabilities Act (ADA)
a. Written policies and procedures to allow people with disabilities to benefit from services and containing an
agency-wide ADA grievance procedure
b. Staff is trained regarding Contractor’s ADA policies and procedures
Contact Information
Nikhila Pai
Office of the Controller
[email protected]
415.554.7711
Marissa M. Tirona
415.541.9000
[email protected]
www.compasspoint.org