2013 NCA LEADERSHIP CONFERENCE FACING UNCERTAIN FINANCIAL TIMES

2013 NCA LEADERSHIP CONFERENCE

FACING UNCERTAIN FINANCIAL TIMES

Crystal Clear Solutions, LLC [email protected]

719-440-4838

Financial Management

Financial Statements

Internal Controls &

PoliciesDeveloping A Budget

Document Retention

Audits & Tax

Returns


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Purpose of Financial Reports


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Monitor Budgetary Results Prepare Financial Statements Prepare Annual Tax Return Comply with Grant Reporting Evaluate Charitable Programs Accounting Methods –

Cash and Accrual

Balance SheetOtherwise known as Statement of Financial

Position Informs you what the organization is worth at any

given time

Do you have enough assets to cover liabilities? Restriction of funds – temporarily restricted and

permanently restricted

Provides gain or loss in profits for current period.


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Net Assets on Balance SheetDivide out net assets on the balance sheet to match

your own agency’s restrictionsBoard restricted funds are unrestricted net assetsTemporarily restricted - donor imposed limitations

that will expire by action or timePermanently restricted – can never use principal of

funds only the interest


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Balance Sheet - SampleASSETS

Current AssetsChecking Account $ 18,501.79Money Markey Acct. 130,171.25Petty Cash 150.00Accounts Receivable - Pledges 6,000.00Accounts Receivable - Grants 35,000.00Prepaid Event (Expenses) 4,911.75Prepaid Insurances 2,565.89

Total Current Assets 194,734.79

Property and EquipmentFurniture & Equipment 14,426.51Building & Improvements 325,000.00Land 50,000.00Accumulated Depreciation (56,523.97)

Total Property and Equipment 332,902.54

Total Assets$

527,637.33

Balance Sheet - SampleLIABILITIES AND NET ASSETS

Current Liabilities

Accounts Payable$

5,252.23A/P Payroll Taxes/Benefits 4,230.36Accrued Vacation 3,594.00Agency Payable 30,000.00Deferred Event (Income) 12,500.00Total Current Liabilities 55,576.59

Long-Term LiabilitiesBank Mortgage 297,566.00Total Long-Term Liabilities 297,566.00

Total Liabilities 353,142.59

Net AssetsUnrestricted Net Assets 56,529.71Temp Restr. Assets - Mental Health 5,000.00Temp Restr. Assets - Medical Exams 4,000.00Temp Restr. Assets - Equipment 11,665.55Temp Restr. Assets - Time 30,000.00Temp Restr. Assets - Strategic Plan 15,000.00Temp Restr. Assets - Grant Writer 20,000.00Net Income 32,299.48

Total Net Assets 174,494.74

Total Liabilities & Net Assets$

527,637.33

Income StatementOtherwise known as Statement of Activities or

Profit & Loss (P&L)

Provides monthly and yearly information about income and expenses

Let’s you manage expenses

How income and expenses relate to your budget

Assists in future budget planning


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Building Financial Strength

Internal Controls &

PoliciesCrystal Clear Solutions, LLC

[email protected] 719-440-4838

Internal Controls


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Five Internal Controls for Very Small NonprofitsSet the control environment – policies apply to everyone

from top downDefine responsibilities Physical controls – lock it upCash – have two people count the cash togetherReconciling the bank statement – critical step.

Reconciling means embezzlement will be discovered sooner than later

Internal ControlsFinancial Policies & ProceduresSegregation of duties is a must – Use Common Sense

Use every staff member availableUse dedicated volunteers and board members

Role of the Board MembersReview written policies and proceduresMake sure there is only one style of financial

statements used every monthTreasurer should review financial statements monthly

Eight Key Responsibilities of Treasurers – article on website


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Policies – Suggested & Required

By-Laws (Board should review and update as needed) (Revised By-Laws must be disclosed on the 990 and provided to your auditor)

Personnel policies Conflict of Interest policyWhistleblower policy (required)Document Retention and Destruction policy (required)Investment policiesGift Acceptance policy


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Developing A Budget


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Developing a BudgetReview –

Mission StatementStrategic PlanSupport staff needed

Start by setting up salary allocations by program or funding source

Crystal Clear Solutions, LLC [email protected] 719-440-4838

Sample Salary Allocation


General & Volunteer AnnualEmployee Admin Program A Program B Program C Fundraising Program Salary

15% 25% 5% 25% 10% 20% 100%Executive Director 9,000 15,000 3,000 15,000 6,000 12,000 60,000

10% 30% 5% 30% 0% 25% 100%Program Coordinator 4,000 12,000 2,000 12,000 0 10,000 40,000

0% 0% 15% 60% 0% 25% 100%Program Staff 0 0 5,250 21,000 0 8,750 35,000

0% 50% 0% 50% 0% 0% 100%Program Staff 0 16,500 0 16,500 0 0 33,000

0% 100% 0% 0% 0% 0% 100%Program Staff (.5 FTE) 0 18,000 0 0 0 0 18,000

0% 0% 0% 0% 100% 0% 100%Development Coordinator (.5 FTE) 0 0 0 0 23,000 0 23,000

15% 45% 0% 30% 0% 10% 100%Receptionist 2,550 7,650 0 5,100 0 1,700 17,000

30% 35% 0% 25% 10% 0% 100%Admin Assistant 6,900 8,050 0 5,750 2,300 0 23,000

Total Budgeted Salaries 22,450 77,200 10,250 75,350 31,300 32,450 249,0009% 31% 4% 30% 13% 13% 100%

G&A/FR = 22% Program = 78%

Developing a BudgetFirst, prepare your income budget

Only record income you are confident you will receive (later you can add a small percentage of grants you have applied for)

Note restricted vs. unrestricted income Include in-kind income and expenses (same amount)

Divide in-kind into services, product, and volunteer hours


Sample Budget - Income


DEVELOP/ 6/30/2013PRIOR YEARGENERAL PROGRAM PROGRAM PROGRAM SPECIAL VOLUNTEER APPROVED APPROVED& ADMIN. A B C EVENTS PROGRAM BUDGET BUDGET

INCOME:Carry-over 6/30/12 10,750 15,325 26,075 11,600Grants - restricted City 7,500 7,500 7,500 ABC Foundation 7,000 7,000 14,000 8,000 PPG Foundation 45,000 45,000 45,000 Enterprise Zone 20,000 20,000 20,000 County Grant 50,000 50,000 55,000Grants - unrestricted Health Foundation 43,000 43,000 43,000 Other Funders 20,000 15,000 15,000 20,000 70,000 70,000Donations Annual Fund Drive 7,000 2,200 2,000 3,000 6,000 20,200 17,000 Corporate/Churches 7,500 7,500 15,000 20,000 Program Donations/Fees 14,000 3,000 17,000 12,000 Special Event Income 50,000 50,000 45,000Interest Income 500 500 500Investment Income 20,000 10,000 30,000 30,000Contributed Services 15,620 105,630 70,520 10,630 202,400 202,400

TOTAL INCOME: $93,620 $219,580 $15,325 $175,020 $63,630 $43,500 $610,675 $587,000

Developing a BudgetDetermine expenses based on history, funding

sources and restricted incomeAllocate expenses based on donor restrictions

Plan for a surplus – not a deficitDon’t forget to budget for capital expensesRemember to budget both principal & interest on

mortgage paymentBudget for operational and replacement reserves


Sample Budget - Expenses


DEVELOP/ 6/30/2013PRIOR YEARGENERAL PROGRAM PROGRAM PROGRAM SPECIAL VOLUNTEER APPROVED APPROVED& ADMIN. A B C EVENTS PROGRAM BUDGET BUDGET

EXPENSES:Salaries 22,450 77,200 10,250 75,350 31,300 32,450 249,000 235,000Employee Taxes 1,760 6,000 800 5,600 2,440 2,450 19,050 18,000Employee Benefits 3,200 4,730 400 4,200 3,400 2,280 18,210 18,000Retirement 1,200 4,000 525 7,400 1,370 1,200 15,695 15,000Education 1,500 200 50 550 500 2,800 2,800Office Supplies 750 750 800Program Supplies 5,000 2,500 5,000 1,000 13,500 12,500Dues/Subscriptions 1,000 500 1,500 1,500Printing 600 600 600 600 600 3,000 3,000PR/Marketing 7,000 7,000 2,000Professional Fees Newsletter(print & design) 2,500 2,500 1,000 6,000 5,000 Accounting/Audit 6,000 2,000 2,000 10,000 10,000Travel 400 2,200 300 1,500 1,200 5,600 5,800Insurance 500 500 500 500 500 500 3,000 3,000Board expense 800 800 800Volunteer expenses 2,000 2,000 2,000Miscellaneous 500 500 500Depreciation 5,900 5,900 5,900Special Event Expenses 7,000 7,000 5,000Contributed Expenses Rent/Maint/Utilities 4,670 4,665 18,660 4,665 32,660 32,660 Telephone 580 570 2,280 570 4,000 4,000 Products/services 370 395 1,580 395 2,740 2,740 Professional Time 10,000 100,000 48,000 5,000 163,000 163,000TOTAL EXPENSES $68,180 $211,560 $15,325 $175,720 $59,440 $43,480 $573,705 $549,000OPERATING RESERVE $25,000 $25,000REPLACEMENT RESERVE $2,500 $2,500CAPITAL PURCHASES $2,970 $2,970 $5,000NET PROFIT/LOSS $25,440 $5,050 $0 -$700 $4,190 $20 $6,500 $5,500PERCENTAGE 11.9% 36.9% 2.7% 30.6% 10.4% 7.6% 100.0% 100.0%

Developing a BudgetPrioritize expenses in case of a budget reduction

during the year (having an advance plan will minimize stress mid-year if expenses have to be cut)

Revise your budget during the year if a significant funding change occurs (either increase or decrease)

An accurate budget is critical to your organization – spending time on this in the beginning will make life easier during the year


Developing a BudgetOnce your budget is approved - allocate monthly

income and expenses as accurately as possible by the month (do not simply divide by 12)

Review the budget with staff membersPrepare a time line so budget gets approved prior to

your year-endBe realisticDon’t spend money you don’t have



Document Retention


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Safeguard your documentsWhy Keep Records?

Public Charities must maintain books and records to show it complies with tax rules and to document sources of receipts and expenditures reported on Form 990.

Permanent records - Minutes from Board meetings Year-End Financial Statements/Audits & 990’s Deeds/Mortgages/Long-term Contracts


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Safeguard your documentsPermanent records - Original organizational documents

1023 Application for Exemption IRS Determination Letter Articles of Incorporation By-Laws, including all amendments

Computer System Backups Setup weekly data backups Create “System Image” backup/keep off site


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Audits and Tax Returns


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Audit Bid ProcessSend to at least three CPA firms (see sample letter)

Include your most current financial statements, copy of your last audit and most current Form 990

Ask for a five year commitmentAsk for copies of their peer review (if required by your state)

Establish timeline for fieldwork and presentation to the board

Reminder – your audit has to be uploaded to NCA within nine (9) months after your year-end


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Helpful Tips for Audit PrepKeep a yearly folder of documents for auditor –

Legal billsGrant award letters and contractsBoard minutes and list of Board of DirectorsEquipment leases and fixed asset purchasesApproved budget

You will need an A-133 audit if you expend $500,000 or more in Federal funds


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Audit Checklist – Permanent File ItemsArticles of IncorporationBy-Laws and any amendmentsIRS determination letterApplication for exemption (1023)All notes payable and related amortization

schedulesAny long-term leases Personnel Policies (if you have employees)Narrative of your accounting policies &

proceduresCrystal Clear Solutions, LLC


Form 990 – Which Form


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2010 Tax Year and later (Filed in 2011 and later)

If gross receipts are: If assets are: Form to File >$50,000 and < $200,000 < $500,000 990 EZ or 990

>$200,000 >$500,000 990

A public charity must make available for public inspection its exemption application (Form 1023) and its annual information return (Form 990 series) with schedules, attachments and all supporting documents. However, you do not have to disclose the names and addresses of contributors listed on Schedule B.

Resourceswww.nca-online.org

I have posted several sample documents on the NCA Leadership Conference website.

www.blueavocado.orgwww.irs.gov

Form 4506-A Request for Copy of Exempt IRS Form On this Form you can request copies of Form 990, Form

1023 (your application for exemption), and Determination Letter

Pub 1779 – Independent Contractor or EmployeePub 4221-PC – Compliance Guide for 501(c)3 Public

CharitiesPub 1771 - Charitable Contribution (Disclosure

requirements)Crystal Clear Solutions, LLC


Documents

2013 NCA LEADERSHIP CONFERENCE FACING UNCERTAIN FINANCIAL TIMES