Nonprofit Finance and Reporting: What every board member should know

1. Nonprofit Finance and Reporting: What every board member should know Molly Lovelock lovelock3@gmail.com 815-520-0811

2. Introductions… • Your organization(s) • Your name, role in organization • How much do you like financial statements? • Love them and/or work with them all the time in your job • Never look at them if you can avoid it • In between and/or….

3. Is this business successful?

4. Is this nonprofit successful?

5. Overall responsibility for board members • Setting policy • Promoting the mission

6. Board finance responsibilities • Annual budget • Review financial statements • Audit • IRS form 990 • Setting financial policies, including internal controls • Opening bank accounts • Determine who signs checks • Borrowing • Approve capital projects • Compensation ED

7. Board protections • Your nonprofit is incorporated • Directors and Officers insurance • Delegation and oversight

8. The Annual Budget Key strategic document for the year ahead • The Board approves the budget each year • Understand the revenue & expense items • Compare proposed budget with previous year’s budget and actual results • Ask questions • Board may approve a revised budget mid-year, if needed (but not necessary)

9. Financial Reports • Board oversight • Community oversight • Funder requirements (grants, government contracts, restricted donations) • Legal requirements (e.g. IRS form 990) • Management tool for operations

10. All those numbers every month…

11. Focus in on what is important • Income and expense vs. budget • Balance sheet, knowing the key items • Standard accounting is important • There is a reason for the rules and practices • Consistency allows better, broader understanding • Be sure that someone points out what’s important in words!

12. Budget vs. Actual • Board should have actual vs. budget at every meeting • Reporting is most useful if clear, uncluttered, and following standard accounting procedures • Management will review in more detail than the board. (Sometime Board Finance Committee may also review more detail.)

13. Example of simple presentation

14. Graphics can illustrate key issues

15. What is crucial to know? Every board member needs to know what income or expense items make the difference for that organization. • May want to highlight those items in a “dashboard” • Talk about these: what is behind the figures? What may need to change?

16. Balance Sheets are also crucial • The statement of “Financial position” • Cash • Fixed assets • Money owed the organization? • Debt or bills owed? • Net assets

17. The board and balance sheets • Board should always have a balance sheet in reporting at each meeting • Report should be clean, uncluttered (e.g. combine like categories) • Comparison with prior year or prior period may be useful • Make sure board members know what the items mean and why they are important.

18. Basic Statement of Financial Position (Balance Sheet)

19. Focus on balance sheet items • Cash: If problems, why? • Accounts receivable: Who owes you what? • What other assets do you have? • Liabilities: Who will you need to pay and when? • Net Assets. This is KEY for nonprofits. How much unrestricted? Temporary restrictions? Permanently restricted funds?

20. Restricted Funds • Tracking programs separately • Keeping tabs on “temporarily restricted” on the balance sheet—each purpose, and when “released from restrictions” • Permanently restricted (endowments) • Distinguishing restricted from “designated” funds • Decisions on using unrestricted funds

21. Practice Reading Financial Statements • What is the most positive thing you see on these statements? • What is the thing that worries you the most? • What question, as a board member, would you most like to ask?

22. The Independent Audit • Required in Illinois if revenue over $300,000 (or may be required by funder etc.) • Role of audit committee of the board • Board hires qualified CPA to do audit • Good practice to go out to bid on the audit every 3-5 years • Auditor reports back to the board with final financial report and other insights

23. The IRS 990 • Required of 501(c)3 nonprofits • Usually prepared by the auditor or a CPA • Short form for smaller organizations • The 990 asks questions about governance and oversight, as well as finance • Board must approve before submission • Publicly available on Guidestar or if asked • Illinois also requires its own form and 990.

24. Setting financial policies • Financial policies should be in writing • Board approves (like personnel policies) • Policies should reflect: • Reality, nature of the work • Best practices • Size of the organization • Review/revise every few years

25. Include in financial policies • Purchasing and expense process • Incoming funds • Bank account and check signing • Gift acceptance • Credit cards • Payroll process • Mileage reimbursement • Capitalization policy • Budgeting • Reporting • Record retention

26. Other board functions • Open bank accounts and decide on signers • Borrow money • Embark on capital projects, including budget • Approve certain grant applications • Compensation/review of Exec. Director • Ensure that legal obligations are met (employment taxes, insurance, etc.)

27. Mission, mission, mission • Is the money there to do the important work of your organization? • Is it being used for your mission and according to policy/budget set by board? • Are funders requirements being met? (and does funding mesh with your mission?) • Is the organization sustainable? Is action or change needed?

28. Board Finance Checklist • Budget • Financial statements • Audit • IRS form 990 • Financial policies • Legal obligations • Bank accounts • Check signers • Borrowing • Capital projects • Compensation ED • Mission!

29. Nonprofit Finance and Reporting: What every board member should know Molly Lovelock lovelock3@gmail.com 815-520-0811