2/27/2014. Introduction to Financial Management Best Practices. Learning Objectives. Donors don t give to groups they don t trust 1

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From this document you will learn the answers to the following questions:

  • What determines the formal structure of an organization?

  • What is the main risk of an organization?

  • What does information and communication do?

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1 Introduction to Financial Management Best Practices P R E S E N T E D B Y G L E N D A Y. H I C K S, C P A F O R P A R E N T T O P A R E N T O F G E O R G I A, I N C. R E G I O N 3 P T A C F E B R U A R Y 2 7, Learning Objectives Identify policies and internal controls for integrity and accountability Understand financial tools and infrastructure that support financial soundness Understand the impact of sound accounting practices on: Audit requirements Funder reporting Managing programs and services efficiently Transparency and accountability 2 3 Donors don t give to groups they don t trust 1 Former Executive Director of the Indiana University Center on Philanthropy and former President of Indiana University Foundation 1

2 Key Players 4 Board Board Management Management Management Employees Employees Employees Employees Volunteers Volunteers Board s 3 primary roles Set direction Ensure resources Provide oversight Good Governance COSO Framework (Committee of Sponsoring Organizations) Joint initiative Amer. Acctg. Assoc, AICPA, Financial Executives International, Assoc. of Accountants and Financial Professionals in Business, and Institute of Internal Auditors Sarbanes-Oxley 5 Types of Risk 2 6 Key Risks Additional Risks Strategic risk: impact goals and mission Operational risk: impact ability to manage day-today Financial risk: impact assets Compliance risk: impact ability to comply with laws and regulations Revenue risk: diversity of sources Contractor risk: independent or employee Interdependency risk: alignments with other organizations Data risk: information technology 2

3 Why Controls? To assist management in orderly and efficient conduct of its operations Adherence to management policies and procedures Safeguarding of assets 7 Prevention and detection of fraud and errors Accuracy and completeness of accounting records. Timely preparation of reliable financial information Inspire confidence in the organization by its funding partners and beneficiaries Basic Principles 8 Initiate Authorize Process Record Report Financial Statements General Ledger Cash, Fixed Assets, Net Assets, Payables, Revenue, Expense Summary Journals Cash receipts, cash disbursements, Payroll, general, fundraising Source Documents Vendor invoice, receiving report, pledge form, time sheet, Grant invoice, donation check Federal Guidance Federal grant compliance and single audit (OMB A-133: Audits of State & Local Governments and Nonprofits) Expenditures over $500,000 Cost allocation plans (OMB A-122: Cost Principles for Nonprofits) Allowable costs Administrative overhead Administrative requirements for grants and agreements (OMB A-110) Financial mgt., property stnds., procurement, reports, etc. 9 3

4 COSO ( Various guides (Framework, Monitoring) sold through AICPA from $35 to $90 Defines internal control as a process effected by an entity s board of directors, management and other personnel, designed to provide reasonable assurance regarding achievement of objectives in the following categories: Effectiveness and efficiency of operations Reliability of financial reporting Compliance with applicable laws and regulations 10 Is a process Internal Control Effectiveness is a state or condition Varies by organization size Can be more or less formal/structured depending 11 Definitions Control environment-tone, values, integrity, philosophy, skills training, authority, ethics, responsibility Risk assessment-internal and external mgt. of desired objectives (Spreadsheet) Control Activities-policies, procedures, authorizations, reconciliations, verifications, security (Checklist) Information & Communication-identify, capture, communicate, internal and external info., timely, open and honest, good and bad news Monitoring-assess quality over time, evaluate, supervision 12 Key Control Terms: efficient, effective, safeguard, prevent, detect, comply, accurate, timely, training 4

5 Human error Collusion Management Override Changing Conditions Inherent Risks 13 Considerations for Limited Staff 14 As separation of duties becomes less possible, more emphasis must be placed on: Review of Supporting Documentation Limiting access to facilities/assets Transaction Authorization Department Reconciliation Mandatory vacations Use of bonded external service providers, especially janitorial & security Background checks, criminal history review Strong accounting system Use of board members Use of administrative staff and other department staff 14 Sarbanes-Oxley Whistleblower policy Illegal to punish whistleblowers in any manner Criminal penalties for retaliation Correct problems quickly Anonymous reporting Complaint procedures 15 Document Destruction (Records and Retention Policy) It is a crime to alter, cover up, falsify or destroy any document (or persuade someone else to do so) to prevent use in an official proceeding Policy: Hardcopy E-files Voic Back-up procedures Archiving 5

6 Best Practices Accounting policy and procedure manual Budget Budget vs. Actual Dashboard reports Segregation of duties Conflict of interest policy Whistleblower policy Document retention and destruction policy Sufficient knowledge, training, and experience Cross departmental orientations 16 Authorizations Reviews Periodic verifications of results Reconciliation of balances Physical security of assets Computer and program controls (access, changes, exception reporting) Supervision commensurate with competence Regular review of financial reports Monthly financial statements Audit requirements Clean opinion (unqualified present fairly) Qualified-except for this one thing Adverse-significant exception Disclaimer-cannot opine Management letter comments SAS 115 Communicating Internal Control Related Matters Identified in an Audit Must be in writing to those charged with governance Cost and timeliness of engagement Less risk less extensive testing faster turnaround lower cost 6

7 Funder Reporting Repeat funding New funding Increased funding Confidence/Trust 19 Managing programs and services efficiently Accurate information for decision making Timely information for decision making Program specific fundraising needs Drive the fundraising plan Cost intensive programs and services Eliminate/Consolidate/Collaborate Mission accomplished reporting 20 Transparency and Accountability Confidence/Trust Increased giving Increased grants Increased visibility and improved reputation Readily available statistical information Proposals Inquiries Compliance reporting Disclosure (website, annual report, newsletter) 21 7

8 Transparency, continued Readily understood as to what you do and what you do with the money Data for comparability with peers 22 The Nonprofit Trinity Accountability Do you know? 23 Transparency Are you letting us know? Compliance Can we trust you? Helpful Websites Georgia Center for Nonprofits, (or your state s equivalent) National Center for Charitable Statistics, Charity Navigator, Independent Sector, The Nonprofit Times, Internal Revenue Service, &-Non-Profits BoardSource publications, IRS Webinars,

9 Resources 25 The AICPA Audit Committee Toolkit: Not-for-Profit Organizations ($25 - $31.25) (keyword: audit committee toolkit) The National Council of Nonprofits -topic/boards-governance/whistleblower-protectionpolicies Resource Center for Good Governance and Ethical Practice Boardsource The Nonprofit Policy Sampler ($ $104.99) (select Learning Center & Store, then Publications) ENDNOTES 1 Tempel, E. R. (1999). Let s Make Nonprofit Operations Transparent to the Public. IDA Member News 2 Accounting Management Solutions, Inc. (2012). Nonprofit risk management best practices. Retrieved from

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