Financial Responsibilities of Not-for-Profit Boards

Transcription

1 Financial Responsibilities of Not-for-Profit Boards Volunteer Board Development Workshops Hosted by: RDÉE Île-du-Prince-Édouard Funded by: The Government of Canada, through ACOA and the Government of Prince Edward Island, through Fisheries, Aquaculture and Rural Development Facilitated by: Paula Gallant, Training and Facilitation

2 Table of Contents Introduction... 3 The different types of boards... 3 Basic roles and responsibilities... 4 Board Financial Management... 6 Treasurer... 7 Finance Committee... 8 Audit Committee... 8 Staff... 8 Lines of authority... 9 What is involved in Financial Management? Financial Management Checklist Policy Title: Financial Management Operational policy for an administrative Governing Board The budget Budget Policy Responsibility Matrix Budget guidelines Reporting and Audit Reading a financial statement Key terms Revenues and expenditures Good financial practices Key financial indicators Board Calendar References used to develop this module include This manual is provided as part of a workshop series for general information. It does not constitute legal or financial advice. The laws governing a board of directors duties vary from jurisdiction to jurisdiction and are subject to change, therefore any and all readers of this manual should seek appropriate, qualified professional advice about particular situations before acting based on information provided in this manual. 2

3 Introduction While some aspects of corporate accounting and financial management can be quite complex, the basic concepts, as they apply to most non-profits, are not beyond the reach of the average nonprofit staff person or board member. It is important to remember that you don t have to know it all. If (or when) you are uncertain about a piece of financial information or unclear about what steps you should take in response to a financial issue or problem, take advantage of your organization s finance experts and advisors. Your own in-house finance staff, accountant, bookkeeper, and most importantly, your organization s auditor are all resources upon which you can draw. The different types of boards A policy board governs through a partnership between itself (its Chair) and an executive director. Both the board and the operational organization have a hierarchical structure. The board develops broad policies that guide its own work and the operation of the organization. Types of boards Policy board Policy Governance board Working or administrative board A collective A policy governance board follows a set of guidelines developed and promoted by John Carver. The board develops policies that establish ends for the executive director to achieve and proscribes limits to the means that may be used to achieve the ends. The intent is to give the widest latitude to the executive director to use professional judgment in carrying out the day-to-day work of the organization. A working or administrative board has some degree of involvement in operations, in addition to its policy and mission role. These boards may be smaller and their members may serve the organization as volunteers. A collective is a group of individuals who share responsibility for direction and policy, administration and work to achieve common goals. Board and staff/volunteers are the same individuals. The type of board will also affect how the board fulfills its financial management responsibilities. Source: Boards and Board Governance -- BLSmith Groupwork Inc. Used with permission. 3

4 Basic roles and responsibilities Each board performs a different set of tasks depending on their resources and priorities. The following is a list of responsibilities and tasks that all boards must assume. Adapted from Mel Gill s Governing for Results (Trafford 2005). 1. Establish and evaluate the organization's vision, mission, and direction Keep vision, mission, and values up-to-date and make sure that these are shared and understood by staff and volunteers Conduct regular evaluations of how effectively the organization is achieving its mission Carry out strategic planning in order to ensure that the organization is headed in an appropriate direction and that it will have the resources required to reach its targets 2. Ensure the financial health of the organization Make sure that there are adequate financial resources to cover the work of the organization; this includes employee wages and all other operational costs Develop and approve annual budget Investigate opportunities to cut costs (if necessary) Ensure that appropriate financial records are kept 3. Ensure the organization has sufficient and appropriate human resources Be responsible, as employer, for the working conditions in the organization for both volunteers and staff Hire, give direction to, and evaluate the executive director or CEO Ensure that ethical human resources policies are in place and are followed; review HR policies when necessary Make sure that there is a nominating committee for the recruitment of board members 4. Direct organizational operations Ensure that the organization and its directors are in compliance with all legal requirements Ensure that the board works effectively and that it is able to sustain itself, i.e. plan for the future Assess the effectiveness of the major activities and services that the organization delivers and make changes where necessary Oversee organizational structure, culture, and agency administration Practice risk management identify and deal with potential sources of harm 4

5 5. To maintain effective relations with the community and other stakeholders Respond to the changing needs and circumstances of the community (e.g. demographics, prominent issues) and the sector (e.g. donor relations, volunteer management) Find new ways to meet existing needs Use marketing and public relations to ensure that the organization is known to its stakeholders the public and is seen in a positive light Be accountable to stakeholders, such that they have confidence that the organization effectively uses resources to achieve desired results Source: United Way info sheet It is estimated that 12.5 million Canadians volunteer with not-for profit organizations (NPOs). Many of these volunteers serve as members of their organization s board of directors. 1 NPO boards are responsible for overseeing the affairs of organizations that constitute about 7 percent of Canada s GDP, generate annual revenues of approximately $80 billion and provide 2 million full-time jobs for Canadians. 2 Being a director in the NPO sector is a vitally important role. Source: A Guide to Financial Statements of Not-for-Profit Organizations 1 Statistics Canada, Survey of Giving, Volunteering and Participating, Statistics Canada, Satellite Account of Nonprofit Institutions and Volunteering,

6 Board Financial Management According to the Muttart Foundation, financial management in a not-for-profit organization can be described as the managing and accounting of funds to ensure these funds are spent in accordance with board objectives. This includes: Overall management of the organization s resources Approval of the budget Asking sufficient questions To fulfill their responsibilities, board members must: Attend board meetings Read and understand financial reports Understand financial policies Participate in the approval of the annual budget, audit, annual financial reports and financial statements Individual board members: Share equally in responsibility to carry out mandate of organization Share responsibility for prudent management of the organization s finances Are responsible to understand the financial information being presented Should ask questions if they don t understand Can ask for clarification May be liable if they are not fulfilling their individual responsibilities LIABIILITY - Individual board members may be liable for payroll deductions not remitted to Canada Revenue Agency - Income taxes, CPP, EI and GST remittances: board members may be liable as well different procedure for charities than non-profits visit cra.gc.ca for details or contact CRA or an accountant 6

7 Treasurer According to the Muttart Foundation, the treasurer s function is to ensure management of the organization s finances and report either directly to the board of directors or through the finance committee to the board of directors. In addition to their responsibility as a member of the board, the Treasurer may: Maintain all bank accounts Supervise all financial transactions Monitor the organization s budget Report to the Board of Directors and general membership on finances Prepare any required financial reporting forms Ensure that a year end is set (commonly December 31 or March 31) and notify Canada Revenue Agency if year end changes Note: Some organizations delegate these functions to senior staff. Treasurer s report The purpose of the treasurer s report is to understand the organization s financial position. The report should include: o Name of organization o Period of report o Income, expense, cash balance o Signature o Follows format of budget. Simple but accurate. 7

8 Finance Committee Depending on the complexity of the organization, the board may wish to have a finance committee. This committee s terms of reference may be written to include some audit responsibilities. The committee can be made up of two or more board members who meet throughout the year. The committee may be responsible for reviewing the treasurer s records and reports, for example. Usually a review is conducted at the end of the organization s fiscal year. The committee reviews the budget prior to the board, monitors budget performance, and reviews the financial statements as prepared by the external auditors. Following the review the committee recommends to the board acceptance of the committee s findings with respect to the budget and various audit reports. The work of the committee not only protects the organization but also provides assurances to its members and supporters that finances are being handled appropriately. Be thoughtful about having a finance committee and its mandate, especially in larger organizations. Finance committees can be a slippery slope to micromanagement when there are senior staff in place that have been delegated financial management responsibilities. Instead, you might consider, as ad hoc committees, a financial policy committee or a budget committee. Audit Committee Once an organization reaches a certain size, it may require both a finance committee and an audit committee. The role of the audit committee would be to ensure that the audit is conducted in an efficient and cost effective manner, to oversee the financial systems and internal controls, to recommend approval of the annual audited financial statements to the board and to recommend the appointmentof the external auditor. If the organization does not need two separate committees, the finance committee may take on some of these roles or the board itself may fulfill some of the roles. (Muttart, page 10) Staff When an organization has senior staff, the board is responsible for defining the roles, responsibilities and authority this person needs to carry out his/her job. The senior staff (also called executive director, general manageror, chief executive officer) ensures that the financial policies established by the Board of Directors are carried out. As well, they are responsible for the day-to-day financial transactions of the organization. In this case the evaluation of the senior staff becomes a key role of the board in financial management. Source: Financial Responsibilities for Not-for-profit Boards, The Muttart Foundation. Used with permission. 8

9 Lines of authority Source: Financial Responsibilities for Not-for-profit Boards, The Muttart Foundation, page 11. 9

10 What is involved in Financial Management? Financial controls Record keeping Cash flow management System of checks and balances required for systematic scrutiny of all financial transactions Budgeting Revenue and expense that looks forward not back The financial plan Used for comparison throughout the year Indicate level of authority executive director or staff have Contracts Who can enter into contracts? Reporting and record keeping Report to the board by executive director or treasurer Purchasing decisions and protection of assets Price level for requesting more than one vendor List of assets Notify insurance agent of changes in assets 10

11 Financial Management Checklist How does your organization rate in financial management? Use this quick checklist to find out. Has the board adopted a written policy stating the responsibilities and authorities it has delegated to the executive director? Does the board periodically review the activity of the executive director to ensure he or she has not exceeded the scope of his or her authority? Does the board review the financial statements of the agency on a regular basis? Have you recently read and understood your organization s constitution and bylaws? Are there members of staff who would benefit from an upgrading course in financial management? Is your organization required to file annual reports to Canada Revenue Agency (CRA) (to maintain your tax exempt status) or with any other government agency? If so, are they filed on a timely basis? Has the board of directors furnished all agency banks with resolutions authorizing bank accounts and designated cheque signers? Does the board determine that agency activities remain consistent with those indicated in its operating budge Is your current budget consistent with your organization s goals and plans? Do you review on a monthly or quarterly basis, actual income and expenditure compared with your current budget? Does the board of directors approve the operating and the capital expenditures budget of the agency? Must the board give its approval before the budgets can be exceeded? Does your organization prepare a cash flow budget to predict cash flow problems? Do you know how deficit periods are dealt with? 11

12 Has a competent bookkeeper or accountant set up your organization s books? Is your organization eligible for registered charity status under the Income Tax Act? If so, has a tax number been applied for and received? Are funds donated for special purposes kept separate from general funds? Has the agency received a letter from Canada Revenue Agency (CRA) granting tax exempt status? Does your organization use numbered cheques with its name and address printed on each cheque? Do you know who has custody and control of unused cheques? Are all disbursements, except those from petty cash, made by pre-numbered cheques? Are voided cheques preserved and filed after appropriate mutilation? Are dual signatures required on cheques over a stated amount? (If so, state amount $ ) Has the board of directors authorized the amount of the petty cash fund and adopted a policy as to the nature of the expenditures, which should be paid from this fund? Is adequate supporting documentation required for all petty cash disbursements? Is access to petty cash limited to one person? If the board of directors has established a dollar limit on petty cash disbursements, is such a limit being observed? Do you get proper financial statements frequently enough to present an accurate picture of the financial health of your organization? Is your organization regularly audited? Adapted from Financial Management for Community Groups, with thanks to Volunteer Vancouver, Source: Financial Responsibilities for Not-for-profit Boards, The Muttart Foundation, page 57 12

13 Policy Title: Financial Management Sample policy for an organization with an Executive Director. The Executive Director is accountable to the board for the day-to-day financial management of the Association. Board approval is required whenever the following practices are changed or set aside. Financial Controls The Executive Director is responsible for: Not making unbudgeted expenditures of more than $ Not transfer budgeted allocations from one major program or expenditure category to another except where Submit payroll and other taxes as required by law Settle payroll and other liabilities in a timely manner Issue income tax receipts for donations received consistent with the fundraising policy and our charitable designation Not allow any one individual complete authority over a financial transaction. (e.g. there must be two signatures on every cheque) Budgeting The budget is the primary mechanism enabling for board and staff to keep track of, and measure financial performance. The Executive Director is responsible for: The drafting and presentation of the annual budget Insuring that the budget is developed with sufficient information to judge the accuracy of the projections of revenues and expenditures Ensuring that the basis of the budget in any one year is consistent with previous presentations Presenting budgets that anticipate an operational deficit Contracts The executive director cannot, without board approval: Enter into new contractual arrangements with vendors that involve annual commitments by the organization of more than $ or are longer than three years. Enter into contractual relations with funders that involve commitments for services of more than $ annually. 1 Substantially change the organization s banking arrangements or financial institutions Enter into a loan agreement with a bank or financial institution. 1 This item tries to take into account service delivery contracts with government. Such contracts may have their own documentation in the form of a service agreement, MOU or MOA (Memorandum of Agreement) that the Chair of the board, on behalf of the organization, ought to sign. 13

14 Financial Reporting and Record Keeping The executive director is responsible for: Maintaining a full and complete set of financial records in a manner consistent with accepted accounting and bookkeeping practices Presenting a budget to the board s consideration at least one month prior to the beginning of every fiscal year Updating the board on a regular basis as to the performance of the organization in relation to budget Reporting on any financial issues that jeopardize the ability of the organization to meet its financial obligations Present particular financial reports as requested by the board from time to time Purchasing and the Protection of Assets The Executive Director is responsible for: Ensuring that where an expense for particular goods or services purchased is significant that there is an assessment of the quality and price offered by different vendors. Not purchase or enter into contracts in situations where he/she, members of board or staff have a conflict of interest. Operating with adequate fire, theft and liability insurance in effect Operating with effective procedures for the safekeeping of key legal and contractual documents Operating with procedures for backing up and the safekeeping of computer records Date Approved Note: A policy should reflect the level of detail that the directors are comfortable specifying as instructions to the executive director or CEO in any area of management practice. This example of a policy on financial management will be adequate for most organizations with a full time executive director. Such a policy requires the executive director to ensure that procedures are in place, which supports these instructions. This policy adds to the requirement, often stated in by-laws (and therefore a board rather than staff responsibility) to undertake an independent audit. This does not preclude a statement here that provides some direction to the executive director on his/her role in the audit process Dalhousie University College of Continuing Education. May be freely adapted and used by nonprofit and voluntary organizations. 14

15 Operational policy for an administrative Governing Board Including regulations and procedures (No Senior Staff) Example Contract Policy for an Administrative Governing Board Policy Type: Operational Finance Policy: Contracting Intent: Contracts are a necessary part of doing business for the Birch Hill Food Bank. To maintain the confidence of the public and the membership, all contracts will be awarded in an atmosphere of openness, competitive opportunity, and equal access to information. No contracts will be entered into that place the Food Bank in financial jeopardy. Regulations: The Birch Hill Food Bank enters into contracts only with registered companies or societies, registered partnerships and individuals. Contracts must be consistent with the mission of the organization, and within the approved budget. All contracts over $ require a minimum of four quotes. The lowest quote will not necessarily be taken; however, reasons for accepting a higher quote must be documented and kept on file. Any board member bidding on a contract must withdraw from both discussion and voting on the contract. The Finance Committee reviews all contracts for content and format. The Executive Committee must give final approval for all contracts. The board must approve out-of-the-ordinary contracts (those exceeding $ or those not budgeted for) before signing. The Board Chairperson, the Treasurer, and the Contractor sign all contracts. The Executive Committee must approve all changes to contracts, including completion dates. All work stops until changes are approved. Procedures: 1. For purchases under $ , the initiating board committee prepares a draft contract and submits it to the Finance Committee for review. The Finance Committee reviews contracts to make sure that: 15

16 1.1 Standard contract formats are used. 1.2 Budgeted monies are available as outlined in the contract. 1.3 Optional clauses are correctly outlined. 2. The Finance Committee communicates, in writing, any changes to the contract to the initiating committee. If acceptable, the Chair of the Finance Committee initials the contract and forwarded to the Executive Committee for final approval and signing. The Executive Committee forwards out-of-the-ordinary contracts to the board for approval. 3. The Finance Committee makes any changes and resubmits the contract to the Executive Committee for final approval. 4. The Board Chair, the Treasurer, and the Contractor sign and date four copies of each contract. The Finance Committee distributes copies of each contract as follows: 4.1 Contractor 4.2 Organization s files 4.3 Finance Committee 4.4 Chair of the originating committee 5. The chairperson of the committee originating a contract monitors delivery of the service. They review all invoices to make sure that billings are consistent with contract specifications and services received. The chairperson signs invoices as proof of receipt of services, and forwards them to the Treasurer for payment. The initiating board committee prepares reports for the Executive Committee and/or Board as directed. 6. The initiating board committee submits any changes to contracts to the Executive Committee for approval. Approved: Reviewed: Source: Financial Responsibilities for Not-for-profit Boards, The Muttart Foundation, page 60 16

17 The budget The budget is used for planning and controlling The approval of the budget is the principal financial decision of the board in any given year, and the budget and the year-to-date revenue and expenditure figures ought to be the main focus of the executive director s (or treasurer) regular financial report. It is important to create an organizational budget, not jut program, project or department budgets. The budget is the organizations most important financial tool. How to create a budget List the objectives or goals Estimate the cost of each objective (don t underestimate) Forecast the expected income over time (1 year) (don t overestimate) Compare the total expected revenue to the expense Ensure safety margins are built into the budget (contingency planning) Present the budget to the board for ratification or approval Budget Policy Responsibility Matrix Responsibility Senior Staff Treasurer The Board Finance Committee For budget preparation For budget approval For budget monitoring For key expenditures (purchase of capital items, hiring of new staff, and wage increases) Questions to ask: Does the budget reflect the organization s priorities? What are the fundamental assumptions upon which the budget has been prepared (e.g. inflation rates)? Who is responsible for monitoring and controlling budget expenditures? What are the board s budget policies that govern the preparation and control of the budget? Source: Muttart, page 8 Adapted from the Financial Responsibilities for Not-for-profit Boards, The Muttart Foundation 17

18 Budget guidelines: Factor in inflation for salaries and cost of living Prepare minimum, maximum and final proposed budgets which allows for discussion on priorities Decide what requires board approval. For example, capital items, a lease of premises, the hiring of new staff, wage increases. Each budget line item should be calculated independently from any other line item and any past budget amounts. Do your research do not guess about your costs or income generating capabilities. Consider historical information. If you ran the same type of program before, you can refer to the previous year s budget and results for trending information (don t simply copy the values over). Record and save details on each budget line item for reference later on. It is very important that detailed notes are kept for every budget line item, clearly indicating the rationale for the amount. Your budget line items should match the chart of accounts in your bookkeeping system and correlate with the format of your audited statements. Plan for carry-overs from previous years, such as deferred income and expenses. When preparing your monthly budget amounts DO NOT JUST DIVIDE BY TWELVE! If the expense (or income) amounts are truly going to be incurred (or earned) equally each month, then dividing the annual amount by twelve is fine. However, for most program related expenses, you should calculate the monthly amounts based upon the program work plan (program activities) and seasonal variances. Monthly income amounts should be based upon the payment schedule from the funder, or in the case of fundraising income, a fundraising work plan. Seasonal variances should also be reflected in the budget to prevent cash flow issues. Know the high risk areas of the budget and have a contingency plan. After your budget is approved, schedule a meeting with your staff and/or colleagues. Use this opportunity to review the budget and talk about the areas of the budget that are likely to be problematic. Proactively explore potential corrective actions or contingencies. Prepare a year-end estimate at the halfway point of the budget year based upon the way that the individual budget line items are currently trending. This exercise allows you to spot potential problems and make spending adjustments in a timely fashion. 18

19 Financial report should occur monthly. Monthly Variance Analysis Income or Monthly Monthly Monthly YTD YTD YTD Variance Variance Explanation Expense budget actual variance Budget Actual Account $ % $ % 19

20 1 The budget planned to the end of June indicates a surplus of $800 2 The actual revenues and expenses indicate a deficit of $ for the month. 20

21 3 What does item 3 tell you? The budget for the 6-month period to the end of June indicates a surplus of $7,500 4 What does item 4 tell you? The actual revenues and expenses indicated for the 6-month period shows a deficit of almost $5,000 21

22 Reporting and Audit Annual reports: For accountability Responsibility /leadership of board Include key financial information: revenue and expenditures (three-four major revenue categories, and 6-7 major expenditure categories). Can be presented in a pie chart format. List of board members, outcomes, chair report. Auditor report: Independent financial report (available upon request) most mid-size and larger non-profit organizations scrutinize their financial practices annually by means of an independent audit (by a Chartered Accountant). There are several levels of report, with different fees. Recommended for non-profits with annual revenue in excess of $1 million. Smaller ones will likely opt for a less expensive review engagement. Auditor gives his/her opinion that the financial statements fairly reflect the financial picture. Key financial records: Chequebook Cash receipts journal: when cash changes hands. Cash disbursement journal: cash spent in order it was spent Some stakeholders have quite specific interests. For example: Funders (e.g., governments or foundations) want assurances that their contributions to the organization have been used in accordance with the funding submission and subsequent approval; Donors (particularly major donors) want assurances that their contributions have been applied according to their wishes; Members have an interest in how their fees have been deployed and more generally in how the organization is performing; and 22

23 The Canada Revenue Agency (CRA) requires all NPOs to submit an annual filing that includes financial information. Note: NPOs without charitable status submit a T2 Corporate Tax Return if they are incorporated; in addition, NPOs that have assets over $200,000 or receive certain investment income over $10,000 also file Form T1044. Charitable NPOs file Form T3010. The financial information submitted by charities is made available to the public on CRA s website. The Time Frame The first thing to keep in mind is the difference between figures presented at a point in time and figures presented as cumulative sums over time. Point in time: a particular reporting date. For example, the accounts payable figure is the total dollar amount owed by the organization to suppliers at the specified date. Another example is the amount of cash in the organization s bank account at the specified reporting date. Cumulative sums over time: the total financial value of an activity during a fixed period of time, such as a full year or a quarter of a year, ending at the reporting date. For example, the donations figure is the sum of all donations made to the organization over the specified period. Another example is salaries and benefits paid in the period. Relationship between the two: The point in time figures are the net result of all the transactions over time. As a simple example, the current cash balance (a point in time figure) is the result of all transactions that contributed cash minus all transactions that used cash (these latter two are Cumulative sums over time ). 23

24 Reading a financial statement Key terms Assets, Liabilities and Net Assets are point in time Assets are things owned by the NPO or owed to the NPO. Examples of owned items are cash, short or long term investments, buildings, furniture and vehicles. Owed assets are typically accounts receivable, where money is to be received in the future. An example is program fees that have been committed, but not yet received. Prepaid expenses where the NPO will receive services in the future for amounts already paid are also shown as assets. Liabilities are amounts that the NPO owes to others, commonly called accounts payable, where money will be paid out in the future. Examples are the amount owing for office supplies and the amount withheld from employees pay cheques to be remitted to the government, but not yet paid. It can also include vacation pay and debt obligations such as bank loans and mortgages. Net Assets are the difference between what is owned by the organization and what is owed by it. In equation form: Net Assets = Assets Liabilities. Net Assets can be thought of as the amount that is available for the organization to use in the future to continue to operate and achieve its goals. Statement of financial position = balance sheet Assets (what is owned or owed to org) = liabilities (what is owed to others) + equity (what is left of assets when liabilities have been paid) 24

25 Source: A Guide to Financial Statements of Not-for-Profit Organizations, page 13 25

26 Source: Muttart, page 45 26

27 Revenues and expenditures Revenues and expenditures are cumulative sums over time. Revenues are the amounts recorded by the organization associated with increases in economic resources related to its operating activities. Examples are grants from governments (or foundations) and contributions (donations). Some NPOs operate fee-for-service programs, which generate revenues; other organizations may charge membership fees. Organizations with significant investment funds may earn returns on these investments, which would be included in revenues. Expenditures (or expenses) are the amounts spent by the NPO in its operating activities. Examples are salaries, rent and office supplies. Also included in expenditures is depreciation of capital assets (usually called amortization of capital assets ) as the cost of capital assets is usually spread over a number of periods, based on the useful life of each asset. Net Revenues (or Excess of Revenues over Expenditures ) is the difference between total revenues and total expenditures. In equation form: Net Revenues = Total Revenues Total Expenditures A positive number reflects an operating surplus, whereas a negative number means an operating deficit, described as a Deficiency of Revenues over Expenditures. Source: A Guide to Financial Statements for Not-for-Profit Organizations, Chartered Accountants of Canada, 2012 Statement of operations = income statement, What an organization received as income and what was spent overtime Is a consolidation of monthly reports 27

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29 Good financial practices Board Operational Maintain director's liability Payroll deductions, income taxes, CPP, EI, GST remittances Keep board minutes that include financial reports and decisions Workers' Compensation payments (depends on nature of work) Hold regular board meetings Review by-laws regularly Up to date job descriptions for board and staff Opening a bank account - you want a monthly statement and cancelled cheques Signing cheques: authorized signers do not assumre more responsiblity if they are follwoing policy Treasurer should be a signing authority. Two people sign all cheques Maintain an overall organizational budget, not just project budgets Mechanism to track accounts payable (to avoid penalties and interest) Fundraising policies to ensure funds are used for the purpose they were intended Internal control: prevent fraud and detect errors no one person should handle all aspects of any financial transaction. Mechanism to track receivables (to track what is coming in) Are you a registered Charity? Filing annual reports to CRA to maintain status. Bank reconciliations - balance is correct every month (and balanced weekly). Compare bank deposits to statements. Petty cash: allows for small payments on the spot. Voucher + receipt. 1 person. Safe location. Computerize: reduces the amount of time and is a mechanism to track activity Cash receipts should be handled by treasurer and deposited and receipt given asap Use claim forms for regular disbursements (travel, etc.) 29

30 A brief note on fund development Fund development is a major activity for many not-for-profit boards. There are many resources available on the subject. As the organization begins to consider the implications of fund development, some basic questions need to be asked: Can the organization protect itself against unsuccessful fund development activities? What will be lost if you do not achieve goals? Should the organization engage in fund development to support its operating budget? When should the organization utilize the services of a professional fund developer? What are the costs? What are the implications? Does fund development affect other sources of funding? What reporting does Canada Revenue Agency (CRA) require? Does the organization have a policy against engaging in any fund development activities? How does the organization handle bequests? There are three types of contributions: A restricted contribution is a contribution subject to externally imposed stipulations as specified by the donor. An endowment contribution is a type of restricted contribution specifying that the resources contributed be maintained permanently. An unrestricted contribution has no externally imposed conditions and the NPO is free to use the funds in any manner it chooses. (It is neither a restricted contribution nor an endowment contribution.) Charitable receipts should be sequentially numbered Receipts should be issued on an ongoing basis Receipts should include a statement that this is an official receipt for income tax purpose Include on receipt: charity taxation number, name and address of organization, name and address of donor, amount, and date. File a T3010, the Registered Charity Information and Public Information Return 30

31 Key financial indicators Cash flow Will revenues predicted be received in time for us to meet our expenses? Revenue sources distribution Are our sources of revenue diverse enough to provide us with some security and flexibility? Fundraising revenues to fundraising expense ratio Is the organization raising money efficiently? CRA may have a look when the ratio is higher than 35%. Calculated by adding up donations divided by total expenditures. Program and administrative ratio Overhead percentage of revenue is directed to program delivery or benefits to client vs. percentage to administration and infrastructure Low overhead may not always be a good thing. Transparency and accountability can be expensive, for example, putting out an annual report, communication with stakeholder, monitoring activities. 31

32 Board Calendar Directors can expect to review each of these types of financial reports at various points in time. The dates in the calendar year depend on the NPO s fiscal year-end. The fiscal year is the 12- month period used for calculating the figures in an annual financial statement. The fiscal year may not coincide with the calendar year. For those organizations with a December 31 year-end, directors can expect the following: Budget review in the fall; Draft audited financial statements in the spring; and Internal in-year financial reports at least every quarter (and in some organizations, every month or bi-monthly). Board Planning Calendar Example of Financial Management Items Only January Financial Report/Draft budget for next fiscal year May Financial report Draft auditor s report September Financial report February Approve budget for next fiscal year June Annual report Treasurer s report Annual General meeting October March End of fiscal year (March 31) July November Financial report April Start of new fiscal year August December 32

33 References used to develop this module include: Financial Responsibilities for Not-for-profit Boards, The Muttart Foundation 20 Questions Directors of Not-for-profit Organizations Should Ask about Fiduciary Duty, Chartered Accountants of Canada Guide to Law for Nonprofit Organizations in Atlantic Canada, Legal Information Society of Nova Scotia Primer for Directors of Not-for-profit Corporations, Industry Canada Board Development: Financial Responsibility, United Way of Canada Financial Management Practices and Policies, Non-Profit Sector Leadership Program, Dalhousie A Guide to Financial Statements for Not-for-Profit Organizations, Chartered Accountants of Canada, 2012 Other resources: CRA checklists 33