The Board’s Role in Budgeting and Decision Making

Grinspoon Institute Conference November 13, 2011 Springfield, MA Jeff Greim Director, MS in Nonprofit Management & Philanthropy Bay Path College [email protected]

1

Question

•

Are you responsible for a:

–

Business;

–

Corporation; or

–

Nonprofit Organization?

2

Answer

• You are responsible for all three – You are responsible for a business that is organized as a nonprofit corporation that is often thought of as an organization. – But your business not about profit maximization. –

Your business is about Mission Maximization

• creating the greatest possible “social good” for which you have been granted tax benefits by the government. 3

ERGO: Three Imperatives

1. NO MONEY, NO MISSION 2. LIQUIDITY is All IMPORTANT – Means to weather the economic storm WHEN it comes; – Provides your organizational independence to try something new without having to first convince a funder of its merit. 3. NEVER VIOLATE THE PUBLIC TRUST – Don’t do “it” if you don’t want to see “it” on the front page of your local newspaper. 4

A Good Financial Structure is a Prerequisite to Making Good Financial Decisions • • • • Organizational Structure Policies and Procedures Recordkeeping Alignment/Coordination of Financial and Operational Goals 5

Organizational Structure

• All Officers of an organization are responsible for the financial integrity of the organization. This includes the Board Chairman and Members, CEO, COO, CFO and/or Treasurer. • Accordingly, all these people have to have access to the financial decision-making process and have access to information necessary to make informed decisions.

6

EVERYONE IS RESPONSIBLE

Page 75 Financial Management for Nonprofit Organizations Zietlow, Hankin, Seidner • “ ….financial responsibility is ultimately shared by everyone in the organization with decision making responsibilities: the board of directors/trustees, councils, and committees, ED/CEO, and other managerial and program staff. According to IRS laws governing nonprofit organizations, any of the above-mentioned persons can be held liable for financial errors as long as there is sufficient evidence to presume that they should have known about the errors and could have acted to avoid them.

” 7

Organizational Structure

• Sarbanes-Oxley Law – Whistle blower protect – Board Chair and ED sign Form 990 • Board Committee Structure – Audit Committee without management • Independent Auditor 8

Audit Committee Responsibilities

P. 84 Financial Management for Nonprofit Organizations Zietlow, Hankin, Seidner “ Audit committees must implement a process that supports their understanding and monitoring of the: – Specific role of the audit committee in relation to the specific roles of the other participants in the financial reporting process (oversight) Critical financial reporting risks; – Effectiveness of financial reporting controls; – Independence, accountability, and effectiveness of the external auditor; – Transparency of financial reporting. …the external auditor should report directly to the audit committee.

” 9

POLICIES AND PROCEDURES

•

SYSTEMS OF ACCOUNTABILITY PROTECT YOUR ORGANIZATION AND PROTECT EVERY EMPLOYEE

– –

If you implement policies and procedures that have checks and balances and controls:

• Staff know their respective responsibilities and they are bound to following those procedures and policies.

Consequently:

• No one can be accused of any wrong doing; and • When your actions are questioned, you can always say, “ I followed procedure.

” 10

• • • • •

Policies and Procedures

Areas to be Covered by Procedures

Purchasing

• —You need a system for how purchases and contracts get authorized and tracked: Amounts requiring special approval; • Leasing — (office equipment, program space, automobiles, etc.)

Contracts

— • Services received, and • Services to be provided.

Payroll/Time Sheets

—You need a system for how hours worked with be recorded and verified.

Accounts payable

—Need a means of tracking how you are paying your bills and what funds are being used to pay which bills.

Accounts receivable

what is owed you.

—Need a means of tracking how you are collecting the money owed you and how you are keeping track of 11

Policies and Procedures

REQUIRE TWO SIGNATURES EACH PROCEDURE NEEDS TO REQUIRE AT LEAST TWO SIGNATURES AND/OR REVIEWS BY PEOPLE IN DIFFERENT ROLES AND POSITIONS OF AUTHORITY IN ORDER TO ESTABLISH

“

CHECKS AND BALANCES.

” 12

Don

’

t freelance!!!!

• Don ’ t ignore a procedure because: – You are in a hurry; or – You can’t be “ bothered ” ; or – You are the “ boss.

” • It’s when you deviate from procedure that you get yourself and your agency in trouble. 13

Recordkeeping

• If you don’t have accurate information in decipherable format, you can’t make informed financial decisions. ERGO – Financial Statements.

– Budgets and Variance Reports.

– Form 990’s. 14

The building blocks of financial statements

Financial Statements

Statement of Financial Position Statement of Financial Activity Statement of Cash Flow

Account Categories & Chart of Accounts

assets, liabilities, net assets, revenues, expenses, gifts, etc.

Accounts & Account numbers

cash, account payables, program fees, rent, donations, etc.

Accounts and account numbers get organized into Account Categories and COAs which in turn get organized into Financial Statements. 15

Major Accounting Categories Items

ACCOUNTS: The Foundation Tools of Financial Recordkeeping

Definitions

FINANCIAL STATEMENTS: The Key Reports for Financial Accountability and Analysis

Typical Chart of Acct. Numbers Financial Statements Purpose Key Math Statement Cash Cash Equivalent Investments Contributions receivables ASSETS:

The probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events

Accounts Receivables Other Receivables Inventories

Not security deposits or restricted money--Cash is the most liquid asset that has no strings attached to it at all. Financial Instruments that are readily convertible to cash within three months--Treasury notes, money market funds, commercial paper. Stocks, bonds, IOU's Contributions owed the organization. A pledge that hasn't yet been fulfilled. The receivables represent funds that are owed to the not-for profit organization from individuals or other organizations because of services provided or goods sold to these other entities. The receivable should not be recorded until the organization actually "earns" the revenue. Not all receivables are ultimately collected.

1 series (10000s)

Not for profit organizations sometimes have other receivables reported on their statement of financial position representing money owed to them for reasons other than the two main categories previously described. Examples: Amounts owed under grants (for general support); Reimbursements of expenses; Reimbursement of expenses paid on behalf of other not-for-profit organizations. Inventories are items that the organization expects to sell. In other words, supplies that are expected to be used by the not-for-profit organization in its operations should not be reported as inventories.

Property, Plant, and equipment

Sometimes referred to as fixed assets, the property, plant (building) and equipment if a not-for-profit organization represents its long-lived assets used in the conduct of the organization's business. These would include land, buildings, equipment, offic e furnishings, computers, vehicles and other similar assets. Normally there are minimums amounts here. ( Lease-hold improvements, Capitalized leases. P. 18 )

Prepaid Expenses

Pre-paid expenses are assets that arise because an organization has paid for services that it will receive in the future, with the future being defined as a time past the fiscal year-end. EXAMPLE--On-line education software subscriptions bought in May with left over funds that will be used starting the following September.

Accounts Payable Accrued Expenses

Accounts payable essentially represent the unpaid bills of a not-for-profit organization. These are bills for goods or services that have been received by the organization prior to the end of its fiscal year. Accrued expenses represent liabilities for goods and services received by a not-for-profit organization for which either and invoice has not been received or the entire invoice does not apply to the fiscal year-end reporting.

LIABILITIES:

Probable future sacrifices of economic benefits arising from present obligations of a particular entity to transfer assets or provide services to other entities in the future as a result of past transactions or events.

Debt

Liabilities owed by the non-profit to others. "debt is known by several different names, usually based on how long the debt has before it becomes due , or matures. Short-term loan (five years or less) Line of credit (like checking account overdraft privileges) "It is important to note that a liability is not recorded at the time that the not-for profit organization obtains the line of credit, but rather when it draws down on the credit line.

Short-term debt

Short-term loan (one year or less)

2 series (20000s) Line of Credit Long-term debt.

Line of credit (like checking account overdraft privileges) "It is important to note that a liability is not recorded at the time that the not-for profit organization obtains the line of credit, but rather when it draws down on the credit line.

Longer-term debt incurred by a not-for profit organization is usually associated with the construction of a facility or other major capital improvement.

Deferred Income

W hen cash is received by a not-for-profit organization prior to its either having earned the income or the right to keep the income, it records the cash along with a liability-type account called deferred income. (See Page 28. Subscription sales to the Opera before the shows are produced.) Unrestricted Net Assets

NET ASSETS:

The difference between the assets and liabilities of a non-for-profit organization. Temporarily Restricted Net Assets Unrestricted net assets represent the net assets of a not-for-profit organization that are not temporarily restricted or permanently restricted. Temporarily restricted net assets are those net assets whose use is limited by either a donor-imposed time restriction or a donor-imposed purpose restriction. Permanently Restricted Net Assets Permanently restricted net assets represent those net assets that a donor has instructed the not-for-profit organization to maintain in perpetuity, that is permanently. IE Endowment where only the interest can be used not the principal.

3 series (30000s)

REVENUES REVENUES are "inflows or other enhancements of assets of an entity or settlement of its liabilities (or a combination of both) from delivering or producing goods, receiving, services, or other activities that constitute the entity's ongoing major or central operation."

4 Series (40000s) Personnel Expenses Facility Transportation Program Expenses EXPENSES:

The "outflows or other using up of assets or incurrence of liabilities (or the combination

Program Support

of both) from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major or central operations."

Administrative Expense

Salaries Benefits

5 Series (50000s) STATEMENT OF FINANCIAL POSITION Determine if the organization owns more than it owes.

STATEMENT OF FINANCIAL OPERATIONS Determine if the organization MADE or LOST MONEY in the Past Year. Assets minus Liabilities equals (+ or -) Net Assets Revenues minus Expenses

16

equals Profit/Lose

(which increases or decreases the organization's net assets)

Statement of Financial Position (SFP)

•

SFP

—at a point in time—compares the assets of an organization against its liabilities to evaluate whether or not the organization is “ solvent ” – Does it have positive net assets or negative net assets? – Does it “ own ” “ owns?

” more than it “ owes ” or does it “ owe ” more than it • By definition, if an organization has negative net assets then it owes more than it owns. In such a case, the organization ’ s lenders can call in the outstanding IOU ’ s at anytime and put the organization out of business. 17

State of Financial Position (SFP)

(CONTINUED)

• The SFP is based upon the following equation:

ASSETS = LIABILITIES + NET ASSETS

• This implies that for every $1 of assets there has to be a corresponding $1 of liability (the IOU) and/or net asset. • Net Assets is sometime called “ equity.

” 18

State of Financial Position (SFP) Template Format

• • • • • • Assets – Xxxxx – Xxxxx – Xxxxx Total Assets Liabilities – xxxxx – Xxxxx – Xxxxx Total Liabilities Net Assets – xxxxx – Xxxxx – Xxxxx Total Net Assets • Liabilities and Net Assets $$$$$ $$$$$ $$$$$ $$$$$ $$$$$ $$$$$ $$$$$ $$$$$ $$$$$ $$$$$ $$$$$ $$$$$ $$$$$ 19

Statement of Activities (SA)

•

SA

summarizes the financial activities of an organization for a specified period of time — normally the financial year —and evaluates whether the organization “ made ” or “ lost ” money during the period.

• If the organization has made money, then the “ surplus ” increases the organization ’ s amount of Net Assets by that amount. • If the organization has lost money, then the “ deficit ” reduces the organization ’ s positive Net Assets or increases the organization ’ s negative Net Assets. 20

Statement of Activities (SA)

(continued)

• The SA is based upon the following equation: REVENUES – EXPENSES = NET REVENUES • If NET REVENUES is positive, then the organization made money and this is reflected as an increase in Net Assets on the SFP. • If NET REVENUES is negative, then the organization lost money and this is reflected as a decrease in the Net Assets on the SFP. 21

Statement of Activities (SA)

(continued)

• SA is presented in several different formats for different analytical purposes. • SAs are formatted by “ funds ” to see if the part of the organization ’ s financial resources that are controllable is financially viable: – Unrestricted – Temporarily restricted – Permanently restricted. • SAs are formatted by – Supporting services • Administration • Fundraising “ functions ” to see how different parts of the organization are performing financially: – Programs Areas and individual programs, Watch dogs want to see if the organization is financially focused on its mission —not expensive fundraising gala ’ s and not excessive executive salaries.

22

State of Financial Activities (SFA) Template Format

• Revenues – Xxxxx – Xxxxx – Xxxxx • Total Revenues • Expenses – Xxxxx – Xxxxx – Xxxxx • Total Expenses $$$$$$ $$$$$$ $$$$$$ $$$$$ $$$$$$ $$$$$$ $$$$$$ $$$$$ • Net Surplus/(Loses) $$$$$ 23

Statement of Cash Flow (SCF)

(continued)

• SCF evaluates the amount of cash an organization has at the beginning and end of a specified time period —usually the financial year. • This is important because while an organization can be wealthy it will not be able to “ buy ” its way out of a financial crisis if it doesn ’ t have enough “ cash ” “ cash.

” • This directly relates to establishing a Liquidity Target and being vigilant throughout the year about maintaining it. • SCF also shows how an organization increased or decreased its during the period: – Spent it on investment? – Spent it on Court settlements?

– Spent it to cover operating loses? – Gained it from operating surpluses?

– Gained it by selling off assets? – Gained it by taking out a second mortgage?

24

Statement of Cash Flow (SCF)

(continued)

• SCF is based upon the following equation: Cash (Time 1) – Cash (Time 2) = Change in Cash (Time 1 to Time 2) • Different Formats – Direct Method • Actually shows every increase and disbursement of cast throughout the year. – Indirect Method (most common format) • The change in cash becomes a plug number based upon the other numbers in the statement. • This format easier to use. 25

IRS FORM 990

• THE IRS REQUIRES MOST NONPROFITS TO SHARE FINANCIAL INFORMATION WITH THE FEDERAL GOVERNMENT ANNUALLY. • THE FORM USED TO REPORT THIS INFORMATION IS CALLED FORM 990.

• YOU CAN THINK OF IT AS SOMETHING LIKE A MODIFIED INCOME TAX RETURN —ALTHOUGH THIS IS A GROSS OVER SIMPLIFICATION. 26

IRS FORM 990

• • June 8, 2011 WASHINGTON –– The Internal Revenue Service today announced that approximately 275,000 organizations under the law have automatically lost their tax-exempt status because they did not file legally required annual reports for three consecutive years. The IRS believes the vast majority of these organizations are defunct, but it also announced special steps to help any existing organizations to apply for reinstatement of their tax-exempt status.

http://search.irs.gov/web/query.html?col=allirs&charset=utf-8&qp=&qs= Wct%3A%22Internal+Revenue+Manual%22&qc=&qm=0&rf=0&oq=&qt=Form+990&search.x=0&se arch.y=0 27

ALIGNMENT OF FINANCIAL AND OPERATIONAL STRATEGY TO MAXIMIZE MISSION What you are deeply

passionate about

What you can

be the best in the world at

What drives your

economic engine

28

ALIGNMENT OF FINANCIAL AND OPERATIONAL STRATEGY TO MAXIMIZE MISSION

• • Make all decisions within context of the “Big Picture”—your short and long-term goals. Financial Planning and Operational Planning has to be done in concert – The “Left Hand” needs to know what the “Right Hand” is doing at all times.

29

IT’S ALL ABOUT BALANCE

From Mission, Money, Merit by Kersti Krug & Charles B. Weinberg 30

BUDGETTING: Major Themes

– Budgeting deals with three related components of financial management: • The Budget Process; • The Budgets themselves; and • Variance Analysis.

– Financial management depends on vigilant implementation of each component —your management strength is only as strong as your weakest link. – “ GIGO ” applies as much to budgets as it does to computers. (GIGO —Garbage In, Garbage Out) 31

BUDGETING, BUDGETS, and VARIANCE ANALYSIS The process ( budgeting ), the product ( budgets ) and the ongoing monitoring ( variance analysis ) that enables you to always know the financial condition of your organization.

32

Budgeting: Allocating Scarce Resources

• A definition: The intentional allocation of finite resources for maximum benefit —as defined by the organization ’ s mission and/or its individual program goals. • On an agency-wide/macro level, budgeting involves looking at all your actual and potential revenues and deciding how you will broadly allocate them to pay your expenses in an effort to maximize the public good in the near and longer term that is the mission of your organization. • At bottom, budgeting is “ putting your money where your mouth is.

” 33

Budgeting + Operational Planning

• By necessity, the agency-wide budgeting process has to be intertwined with the agency ’ s short and long-term strategic plan. If you don ’ t have and/or cannot plan to get the financial means needed to carry out your strategic plan, then your strategic plan is meaningless.

34

Budgeting: Critical Considerations

• At this macro level then, the process requires you—the CEO —to consider and at times work within several limiting parameters: – Your organization ’ s strategic and operational goals and the financial means needed to achieve them; – Your organization ’ s liquidity target; – Specific restrictions on near and long-term revenues stipulated by funders, laws, regulations, etc. ; – Specific restrictions/requirements on expenditures stipulated by funders, unions, prior organizational commitments such as employee benefit policies, mortgages, long-term leases, etc.; and – Your organization ’ s ability to generate unrestricted “ revenues ” . 35

Budgeting is ITERATIVE

• Consequently, budgeting is always an iterative process. It takes time for all involved in the macro decision-making policy to: – Gather and analyze all the information that is required for making informed macro budget decisions; – Evaluate the likely consequences of various possible decisions; and – Develop “ consensus ” about the budget decisions that are to be implemented. 36

Budgeting is ITERATIVE

• The

iterative process

typically involves developing plans to eliminate the projected gap between the projected revenue and the projected expenditures —sometimes called PEGs. (Plans to Eliminate the Gap) • This involves increasing revenues or decreasing expenditures. • Decreasing expenditures typically involves three possibilities: – Shifting costs to a third party; – Improving efficiencies; doing more with less; and – Reducing services. 37

Budgeting is ITEREATIVE

• Use Interactive Spreadsheets to help you do “What if Scenarios” • Identify the variables that will most influence your costs and revenues, place their values in “reference” cells, that are then referenced in the actual budget. • As you change the values in the “reference”, the totals in your formula driven budget will change. • This is a very powerful tool for integrating financial planning and operational planning Note: Go to Excel Examples 38

Budgeting: Building Joint Ownership

• The budget process most be a bottom-up and a top-down process. – Those who are going to be held accountable for staying within the budgets must be given a part in developing the revenue goals and the expenditure constraints to which they are going to be held accountable. – Also, top management can ’ t have perfect knowledge about is happening “ on the ground ” expenditures. and so by definition can ’ t know all the operational ways to generate revenue and/or reduce – Top management must be responsible for the overall financial vision of the organization and help mid and lower-level staff understand how that vision relates to the quality performance of their individual jobs and vice versa. 39

Budgeting

• Agency-wide budgets are typically compilations of individual program budgets. • Make sure that all these individual budgets reflect the same assumptions including: – % of administrative charges; – % of employee benefit cost; – Allocation formulas for assigning shared costs to various programs. 40

Budgeting: The Product

• The product of the budgeting process creates for your organization and its areas of operation a financial roadmap — operational budgets —against which to measure your organization ’ s financial performance. • Budgets have a place—(an account)—for everything —(every revenue and expenditure) —and everything—(a dollar amount) —in its place. 41

A Template for Operating Budgets

COA # Item 4000 4999 Revenues Total Revenues Annual Revenue and Expense Budget for XYZ Program Month 1 2 3 4 5 6 7 8 9 10 11 12 ANNUAL TOTAL 5000 5100 5199 5200 5210 5220 5230 5240 5250 5260 5299 5999 Expenses Personnel Costs Total PS OTPS Facility Transportation Program Support Program Costs Contracted Services Administrative Services Total OTPS Total Expenses Surplus/(Needs) Note: Make sure that your COA has accounts for the information you want to collect and keep track of. Accounting software programs will generate financial reports based upon the items and categories of expenses and revenues reflected in your COA. 42

Operating Budgets: GIGO

( Garbage In Garbage Out) • Don ’ t be lazy in setting up your monthly budget projections. Do the work once instead of ever month as you try to figure out why the numbers- “ actuals ” and the “ budget ” —don ’ t match.

• Don • Don ’ ’ t t “ “ straight-line straight-line ” expected to be different amounts throughout the year. ” revenues if in fact they are expenses if this is not the way they will be incurred: – Make sure your budget reflects payroll fluctuations: • 2 or 3 payrolls months and for the accrual associated with the first pay period of each year that decreases the first month ’ s recorded PS expense and increases the last month ’ s recorded PS expenses.

– If rents are prepaid, make sure this is reflected in the budget. – Account for quarterly or uneven expenses/billings: • Insurance, some utilities, seasonal bills like heating, etc. 43

Operating Budgets: GIGO (Garbage In Garbage Out)

• In most non-profits, the Personnel Services (PS) costs are the largest expense category. So pay extra attention to these items when developing your budgets: – Make sure if your are operating a 24-hour program that you budget enough staff to cover all the hours.

– Make sure your staffing pattern accounts for paid time off. (There are 52 weeks a year but most staff have 13 paid holidays, two weeks vacation (at least), two weeks sick leave, required training days, etc.) Build into the budget the cost of overtime or extra “ fill-in ” staff or part-time staff to cover this paid time off. – Make sure you cover all fringe and benefit expense for qualifying workers. These costs can easily be 30% or higher of the employees ’ wages. 44

BUDGETING: Variance Analysis

• Definition: The ongoing comparison and analysis —at least monthly—of the planned expense and revenue budget numbers against the “ actuals ” --the actual financial performance- to identify and explain the “ variances ” – differences —as they occur.

• This allows you to address unexpected financial problems as they are developing before it’s too late. • There is nothing worse than a year-end surprise. 45

Template of Monthly Budget Report used in Variance Analysis COA # Item 4000 4999 Revenues Total Revenues 5000 5100 5199 5200 5210 5220 5230 5240 5250 5260 5299 5999 Expenses Personnel Services Total PS OTPS Facility Transportation Program Support Program Costs Contracted Services Administrative Services Total OTPS Total Expenses Surplus/(Needs) Annual Budget Budget /Revenue & Expense Report for Program XYZ Period Budget Period Actual Month: ABC Period Variance Y-T-D Budget Y-T-D Actual Y-T-D Variance 46

Template of Monthly Budget Report used in Variance Analysis • Things to notice: – The annual budget comes off the “ Annual Budget.

” ( “ Tell me something I don ’ t know ” ) – The period “ budget ” for the given month. is the budgeted amounts – The format allows you to easily see the variance for the given month and the variance year-to-date. – This allows you to easily compare the magnitude of the variances compared to the annual budget amounts. 47

• Things to watch out for that might make you think you are under spending and have more money than you really do: –

Infrequent billing of subcontractors

. Assume that at some point during the year you will have to pay the full amount of the subcontract unless you verify otherwise.

–

Always account for the fact that under spending in a program leads to under spending in G&A

(General and Administration) costs because the administration cost is normally a percentage of all other programmatic spending. Assume that by year-end you will “ otherwise. Again, don spend ’ ” out the budget and so be fully charged your share of the admin expenses unless you verify t overestimate surpluses due to uneven spending.

–

Don

“ ’

t be fooled by the first month

apparent ” in the last month of the fiscal year. ’

s low recorded PS costs.

Again, this is due to an accounting convention and this savings will be added back to the recorded PS costs 48

• Other Monkey Wrenches that can muddy the Analysis: – Field Staff not submitting bills on time to the fiscal department for payment. (Under spending is simply due to bills not being recorded and paid.) – Fiscal staff not establishing and holding to a set closing date for posting of bills and revenues for a given month. So some months end up containing more days of expenses than others. 49

• Making program managers explain variances is a good way to ensure that they get the invoices in on time. • Determine what level of detail you want to have in your budgets and in your budget reports.

• Don ’ t spend time looking at insignificant amounts of expenditures and/or revenue variance. • Have both program staff and fiscal staff involved in the variance analysis- in the same room at the same time.

“ unknown ” Each will have questions about charges that only the other will be able to explain and/or be able to easily investigate. 50

Budgeting: Cash Budget

• Monitor your cash on a daily basis to ensure that you will never have a short fall when a non negotiable bill comes due---payroll, mortgage payment, utility bills, phone bills, credit card bills, etc. • Nothing screams mismanagement and shaky management to staff louder than having their program credit card rejected somewhere or having one of their routine support services shut off for non-payment of a bill —cell phones, exterminators, garbage collection, food service for a residential program, etc. 51

Understand the

“

Story

” Don ’ t get lost in the numbers 52

CASH FLOW vs. PROFITABILITY

• • Do you have a mismatch between when you get your revenues and when you have to pay your bills? or Do you have more Expenses than Revenues?

• These are very different problems with very different solutions, Right? 53

CTC CASE STUDY

• • The CTC is a child care organization in Hawaii. Recently, the agency has had a major expansion of programming due to it having bid and won major service contracts from both the State and Federal governments. The Board is ecstatic that the organization has tripled the size of its budget and will be able to serve many more children and families. 54

CTC Case Study

• • Revenue 2005-06 – Federal – State – Aloha United Way – Parent's Payment – Contributions – Others Total Revenues $640,350 $612,600 $257,500 $121,600 $116,300 $40,947 $1,789,297 55

CTC CASE STUDY

• • Expenses 2006-2007 – Personnel – Subcontracted Admin Services – Professional Consultation – Supplies – Occupancy – Awards & Grants – Travel – Equipment – Others Total Expenses $1,207,000 $178,870 $45,500 $90,300 $50,000 $54,500 $33,000 $30,000 $70,905 $1,760,075 56

CTC CASE STUDY

•

How is CTC doing?

•

Is it Profitable?

57

CTC Case Study

• Federal Payment is usually received one to three months after billing. At the end of the federal fiscal year, federal regulations required an end-of year contract accounting. Payment for the last month was usually delayed an additional month or two. The state government was the other major source of income. It, as well as parents who paid a portion of their children’s expenses, was billed at the end of the month in which the service was provided and payment was generally received within the next 30 to 60 days. 58

CTC CASE STUDY

•

Does CTC have a cash flow problem?

•

How Big? (Assume expenses are constant throughout the year.)

•

Now What?

•

Is it Profitable?

59

IRON TRIANGLE

Mission and Program Capital Structure Organizational Capacity

From Linking Money and Mission by Nonprofit Finance Group 60

61

The 1993 Budget

• • • What do you think of the Format of the Budget? What do you think about the “guesstimates”

in the budget?

What is the is the Real Budget Deficit? – Check out each budget line and see if the 1993 budget projection seems reasonable. – There is nothing in the narrative that would suggest the numbers are good or bad. 62

63

Issues : Organizational Structure

64

Issues: Policies and Procedures and Recordkeeping

65

Issues: Financial Strategy and Operational Strategy

66

Your General Questions/Concerns

67