Transcript Slide 1

Developing Financial
Practices at the Unit
Level and Beyond
1
Financial Practices Curriculum
•
•
•
•
Strategic Financial Function
Financial Management Cycle
Stewardship & Accountability
Finance Committee
Responsibilities
• Systems & Procedures
• Policies
• Operating Reserves
2
Strategic Financial Function
• REACTIVE: taking whatever the world
gives
• OPPORTUNISTIC: seeking out
opportunities and positioning
themselves to take advantage of them
• PROACTIVE: defining their own
destinies by working to achieve
success
3
Financial Management Cycle
4
Stewardship & Accountability
• Accurate & dependable accounting
• Effective internal controls
& procedures
• Transparent reporting
• Informed analysis
• Responsible planning
• Appropriate responses to financial
data
5
Finance Committee
Responsibilities
1.
2.
3.
4.
5.
6.
7.
8.
Budgeting and financial planning
Monitors that adequate funds are available
for the plan
Safeguards assets
Drafts fiscal policies
Anticipates financial challenges
Ensures that the board receives accurate
and complete information
Helps the board understand the
organization’s financial statements and the
general financial situation
Ensures that federal, state and local
compliance reporting takes place
6
Systems & Procedures
1. Design internal processing forms
2. Do things on a regular schedule
3. Keep a calendar with finance-related
deadlines
4. Develop a month-end checklist
5. Write notes as ideas, issues and
questions arise
6. Keep a financial statement binder
7. Keep an audit folder
8. Update your chart of accounts
9. Securely store organization documents
and records
7
Policies
•
•
•
•
•
Bank Accounts
Credit Cards
Cash Mgmt.
Investments
Record
Retention
• Internal
Controls
• Employees
• Insurance
Coverage
• Volunteers
• Conflict of
Interest
• Gift Acceptance
• Privacy
• IT & Security
• Whistleblower
8
Operating Reserves
What are they & why have them?
• Rainy day fund
• Unrestricted surpluses that are
liquid
• Allow for mission-related risks
• Absorb or respond to temporary
environmental changes
NOTE: Not-for-profit does not mean
“no surplus allowed.”
9
Financial Practices Curriculum
Practical How-To’s
•
•
•
•
Setting Financial Goals
Key Expense Benchmarks
Key Revenue Benchmarks
Investment
Income/Savings/Financial
Reserves
• Developing an Annual Operating
Budget
10
Setting Financial Goals
Using your financial and strategic data:
Reflect on trends of the recent past and their
implications for the current and future on financial
planning for the organization.
Potential donors expect that the majority of the
funds collected by a nonprofit organization are
designated to supporting the mission of the
organization through its programs.
Strive to reach the Key Financial Indicators
including the benchmarks expected by the
Internal Revenue Service (IRS) and nonprofit
watchdog organizations:
11
Key Expense Benchmarks
 Program Services
Expenditures related to the organization’s primary mission
and purpose. Target should be 65-75 percent.
 Management/General Administrative
Expenditures spent on managing operations of the
organization. Target should be 5-10 percent.
 Fundraising
Expenditures spent on raising additional funds for the
organization’s purpose and mission expenses (i.e., grants,
planned giving, endowments, direct mail campaigns).
Target should be 10-20 percent.
12
Key Revenue Benchmarks
 Setting revenue targets
 More difficult than expense targets because
there are no specific industry benchmarks
other than to have a variety of revenue
streams that reduce your dependence on
any one income source.
 Since the American Legion Auxiliary is a
membership organization, we rely on
member dues to cover our expenses.
 By bringing in other resources such as
grants, donations, corporate sponsorships,
special events and bequests, we lower the
dependence on dues and/or reserves alone
to meet our obligations.
13
Investment Income/Savings/
Financial Reserves
 The ability to build up financial reserves is vital
for the future to ensure proper resources are
available to maintain operations of the
organization if necessary.
 “It Depends,” but usually the recommended
amount of reserves/savings is approximately
2.5 times the annual budget of the
organization. For example:
An organization with a $100,000 budget would try to
maintain $250,000 in reserves for emergencies and
have a plan to replenish when withdrawals are made.
14
Developing an Annual
Operating Budget
 Create a three-member Finance Committee for your
unit/district/department.
 Conduct a budget planning meeting of the Finance
Committee prior to the start of your fiscal year; make
sure to invite unit/district/department officers at which
time the agenda should include, but not be limited to
the following:
• Review your current financials in comparison to
the IRS Benchmarks.
• Review your progress status of your long-range
goals (i.e., fundraising for new building).
• Review your annual Auxiliary obligations (VA&R,
poppy promotion, ALA Girls State, VCAF, etc.).
15
Developing an Operating
Budget (continued)
• Review your annual operating expenses (i.e., rent, heat,
bank fees and conference registrations, etc.).
• Review your membership numbers and the related dues
income.
• Review other sources of revenue (donations, events,
bequests, etc.).
 On a 12-month calendar, plot out when you
anticipate your revenue and expenditures will
occur.
 Compare your total estimated revenue versus your
total estimated expenses.
16
Developing an Operating
Budget (continued)
 Try to create a positive bottom line.
 Have the Finance Committee vote to recommend
adoption of the budget by the DEC.
Remember:
Budgets are just a guide.
17
Time to Share Your
Unit and Department
Best Practices
18
Final Duties Each
Year for the Finance
Committee
19
Financial Stewardship &
Accountability
 The Finance Committee is responsible for hiring a
professional outside auditing firm to conduct the
annual audit.
 This responsibility transfers to the Audit Committee
once this committee establishment is adopted. This
cannot be a staff or management function because:
• Auditors must provide the audited financials to the
governing body and report on staff/management activities.
• Management needs to report on the auditor’s activities.
20
Financial Stewardship &
Accountability (continued)
 In 2008 the IRS began requiring small charities, many
of which previously were not required to file tax
returns, to submit an annual report the IRS Form 990.
 There are 4 versions of the 990, based on the asset
size of the organization/financial criteria of the
organization.
 Filing a 990 is mandatory for every unit and
department.
 Which 990 you must file is based on your nonprofits
annual gross receipts.
21
Financial Stewardship &
Accountability (continued)
 The federal Pension Protection Act requires the IRS to
revoke the tax-exempt status of any organization that
fails to meet its annual filing requirement for three
consecutive years. This requirement now applies to all
tax-exempt organizations.
 The Finance Committee works with the Audit
Committee to ensure that all federal, state and local tax
reporting is completed and filed by the due dates. The
Audit Committee works with staff members and external
auditors.
 The governing body approves filing the 990, or may on
record, assign the responsibility to its Audit Committee.
22
Important Information Regarding
TINs/EINs
• ALA Departments and units are separate entities
that operate independently as affiliates of the ALA
• Units and Posts are separate entities and must
operate separately. A Unit and Post cannot have
the same TIN/EIN
• If a Unit or Post are erroneously using the same
TIN/EIN. The error MUST be corrected.
23
Tax-Exempt Status
Revocation/Reinstatement
• A Unit/Dept/District/County/Council that has its own
tax-exempt status revoked by the IRS must handle its
own reinstatement with the IRS.
• Units/Depts/District/Counties/Councils should confer
with legal and/or tax professionals regarding
revocation and reinstatement matters, such as:
• Seeking reinstatement for 501( c )(19) tax-exempt
status using IRS Form 1024
• Deciding to remain a taxable entity and filing the
appropriate annual tax forms.
(e.g. IRS Form 1120 – Corporate Tax Return)
24
Questions?
25
Resources
 Association of Fundraising Professionals: www.afpnet.org
 Fundraising Success (Periodical):
www.fundraisingsuccessmag.com
 Grassroots Fundraising Journal (Magazine):
www.grassrootsfundraising.org
 Donor Development Databases: www.wealthengine.com,
www.kintera.com
 Board Source: www.boardsource.org
 National Council of Nonprofits: www.ncna.org
 Internal Revenue Service: www.irs.gov
 American Legion Auxiliary: www.ALAforVeterans.org
26
Contact Information
Nicole Clapp
National Finance Chairman
[email protected]
27