Four Things to Teach Your Accountant 1

Transcription

1 Agenda Four Things to Teach Your Henry A. Bromelkamp, President Bromelkamp Company LLC Questions for your Board, Software Vendor, and Slide 1 of Slide x 1 Slide 2 Henry Bromelkamp 35 years service to grant makers with 240 clients Designing flexible software that works the way you do Demonstrated expertise in philanthropy Bromelkamp Foundation Nonprofit Experience Africa Classroom Connection Books for Africa Spirit of St. Stephens Catholic Community Agenda Questions for your Board, Software Vendor, and Slide 3 Slide 4 1

2 Ending Balance Daily Balance Number of Transactions Contribution Dollars Grant Dollars Add Reductions/Adjustments (e.g. unrealized/realized, types of assets or activity) No Averaging Over period of Effect (e.g. this month s fees) Rolling/Moving Average (average over the last 36 months, for this month s fees) Flat Rate (each fund pays the same amount) Percentage (same rate on all bases) Step/Graduated Percentage (small/large bases charged different rates) Periodic on a regular schedule Triggers when something happens Transfer Now Set Aside for Future Use Slide 5 of Slide x 5 Ending Balance Daily Balance Number of Transactions Contribution Dollars Grant Dollars Add Reductions/Adjustments (e.g. unrealized/realized, types of assets or activity) You can mix, such as ending balance of Nonspendable plus average daily balance of Spendable Tip: Measure assets for endowed funds, activity for non-endowed funds. Slide 6 of Slide x 6 No Averaging (usually a manual system) Over period of Effect (e.g. this month s fees) Rolling/Moving Average (e.g. average over the last 36 months, for this month s fees) one month average two-year average If you don t average it may be just a holdover from old manual systems. Longer averaging evens the ups and downs. Slide 7 of Slide x 7 Slide 8 of Slide x 8 2

3 Flat Rate (every fund pays the same amount) Percentage (same rate on all Bases) Step/Graduated Percentage (small/large Bases get different rates) Add Minimum, Maximum, Filters, Exceptions, Negotiated, Manual Adjustments Periodic on a regular schedule (e.g. monthly) Triggers when something happens (e.g. when a contribution is received) Exceptions and negotiated deals are difficult to administer. Slide 9 of Slide x 9 Slide 10Slide of x10 Transfer Now (i.e. the fund loses the assets now) Set Aside for Future Use (i.e. the fund owns the assets until spent) Agenda Questions for your Board, Software Vendor, and Slide 11Slide of x11 Slide 12 3

4 typical in red Basis August Average Balance Smith Fund Other Funds Ending Balance Daily Balance Number of Transactions Contribution Dollars Grant Dollars Add Reductions/Adjustments (e.g. unrealized/realized, types of assets or activity) Averaging No Averaging Over period of Effect (e.g. this month s fees) Rolling/Moving Average (e.g. average over the last 36 months, for this month s fees) Formula August Earnings Flat Rate (each fund pays the same amount) Percentage (same rate on all bases) Step/Graduated Percentage (small/large bases charged different rates) Realized Gain Unrealized Gain Dividend & Interest Investment Expense Each fund gets a share of earnings based on its share of the total pool. Timing Periodic on a regular schedule Triggers when something happens Effect Transfer Now Set Aside for Future Use Average daily balance is fairest but hardest to compute. Slide 14 Slide 13 Basis Funds have several metrics Ending Balance Daily Balance Number of Transactions Contribution Dollars Grant Dollars Funds have several metrics. typical in red Add Reductions/Adjustments (e.g. unrealized/realized, types of assets or activity) Averaging Balance Grants Gifts No Averaging Over period of Effect (e.g. this month s fees) Rolling/Moving Average (e.g. average over the last 36 months, for this month s fees) Formula Flat Rate (each fund pays the same amount) Percentage (same rate on all bases) Step/Graduated Percentage (small/large bases charged different rates) Timing Periodic on a regular schedule Triggers when something happens Effect 0 Smith Family Wilson DAF Slide 15 Transfer Now Set Aside for Future Use Disaster Fund Slide 16 4

5 - Example Non-endowed Fund 1.5% of each contribution, charged on receipt $8 per grant $50 quarterly minimum Endowed Fund (Donor Advised) 1.2% of the first $50,000 average daily balance 1.0% on $50,001-$150, % on $150,000 and more annual percentage rate, charged quarterly, 36mo rolling/moving average daily balance Endowed Fund (Scholarship) Manual 2.1% of the average daily balance adjustments annual rate, charged quarterly, 36mo rolling average are daily common. balance Endowed Fund (Agency Endowment) 1.0% on average daily balance annual rate, charged quarterly, 36mo rolling average daily balance Wilson Family Fund Nonspendable Accumulated Earnings Spendable Endowed funds often allot 4-5% per year for spending. Slide 17 Slide 18 typical in red Ending Balance Daily Balance Number of Transactions Contribution Dollars Grant Dollars Add Reductions/Adjustments (e.g. unrealized/realized, types of assets or activity) No Averaging Over period of Effect (e.g. this month s fees) Rolling/Moving Average (e.g. average over the last 36 months, for this month s fees) Flat Rate (each fund pays the same amount) Percentage (same rate on all bases) Step/Graduated Percentage (small/large bases charged different rates) Periodic on a regular schedule Triggers when something happens Transfer Now Set Aside for Future Use Some foundations move assets out of the fund at the time of allotment. Slide 19 - Example Wilson Family Fund sets aside: 5% of Non-spendable Ending Balance 4.5% of Accumulated Earnings Average Daily Balance, 48 month rolling average (Does not include unpaid pledges or current spendable balance.) Don t average the nonspendable, then a fund with a big increase in assets gets to spend sooner. Slide 20 5

6 Not a formula, but a process. Every day, funds receive gifts and award grants, which affect their fund balance. Your system adjusts the fund balances to recognize those changes, moving money between funds to keep each fund in balance. Periodically (such as monthly) Automatically Periodically (e.g. monthly) hundreds of debits/credits. Blackbaud FIMS Stellar Slide 21 Slide 22 Automatic constantly adjust each fund s share of the investment pool to reflect net activity between funds. Pearl Funds balances are correct every second. Agenda Questions for your Board, Software Vendor, and Slide 23 Slide 24 6

7 Questions for your Board Do you want things easiest for the staff, advantageous to the foundation or to the donors? Do we want long term stability or short term accuracy? How are we compensated for volume of transactions versus the fund balance? When is the best time to realize a transaction? Is it our intent to cover our expenses or to incent behavior? Which things are worth doing compared to the staff time invested? Questions to Ask Your Software Vendor Can we use average daily balance as the basis? Can we charge by transaction volume/size, such as gifts? Can our formula treat spendable and non-spendable differently? Can we use minimum, maximum, and step-rates? Slide 25Slide of x25 Slide 26Slide of x26 A Question for Your Do we really have any restricted funds? Thank you! Q&A Four Things to Teach Your Henry A. Bromelkamp, President Bromelkamp Company LLC [email protected] Slide 27Slide of x Copyright Bromelkamp Company LLC. All rights reserved. Slide 28Slide of x28 7