Nuts and Bolts of Financial Management

1. RGV NONPROFIT BUSINESS SUMMIT 2016 Nuts and Bolts of Financial Management

2. LIZANDRO GARCIA Joined Burton McCumber & Cortez, LLP in 2006 and currently serves as a manager of audit & assurance services for the firm. Lizandro received his BBA in Accounting at the University of Texas Rio Grande Valley, formally the University of Texas – Brownsvilleas is also a Certified Public Accountant (CPA). In his tenure with the firm, Lizandro has had experience in audits of non-profit agencies as well as a variety of other industries, including audits of publically traded companies, construction contractors, oil & gas, financial institutions, hospitality, distribution, agricultural, manufacturing, employee benefit plans, healthcare, and governmental agencies. Lizandro is also heavily involved in the firms marketing and technology committees where he brings his expertise to promulgate growth and efficiency for the firm.

3. Objective • To provide valuable information to help non-profits: • Identify the risks organizations face out in the non-profit world. • Understand the importance of financial management. • Importance of Evaluating Risk when there is a lack of financial management structure. • Improve your organization by strengthening your financial management structure.

4. WHAT IS FINANCIAL MANAGEMENT NFP • The fiduciary duty of management and those charged with governance (board of directors), to ensure that the assets of a charitable non-profit organization are used with intention of the donors’ request and supports its charitable mission. • Adopting and adhering to financial policies • Utilize the resources • Get the board involved & if needed, trained.

5. WHAT ARE THE consequences • FRAUD • Fraud over $250,000 or 5% of its total revenues is public • TRUST FROM DONORS LOST • LOSS OF FUNDING / GRANT OPPORTUNITIES • LACK OF PROPER REPORTING • INACCURATE BUDGETING OR FORECASTING • LOSS OF NONPROFIT DESIGNATION • LOSS TO FILL A NEED IN THE COMMUNITY

6. INTERNAL CONTROLS DEFINED • A process, effected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance.

7. CONTROLS ARE EVERYWHERE • Did you lock your home or car this morning? • Do you have a passcode to access your cell phone? • Do you look over your personal bank or credit card statements? • Do you stop when traffic lights turn red? • Do you use a calendar to schedule meetings and appointments? • Do you have a smoke detector at home?

8. COSO INTERNAL CONTROL: INTEGRATED FRAMEWORK • Designed to help organizations develop and maintain systems or internal controls. • 5 components of internal controls

9. 4 Steps for Evaluating IC Structure • Understand the current processes and procedures of your organization. • Identify risks in the current process. • Determine the significance of the risks identified. • Implement a control (process/procedure) to mitigate the risk identified.

10. Common Internal Control Deficiencies in Not-For-Profit Entities • Segregation of duties • Dual signature on checks requirement/use of signature stamp • Failure to maintain updated bank account signature card • Access to accounting software/shared usernames and passwords • Maintenance of AP and AR registers • No monthly budget to actual comparisons • TRUST IS NOT A CONTROL

11. Segregation of Duties • In a perfect system, no one person should handle more than one of the following functions: • Authorization • Custody • Recordkeeping • Reconciliation

12. RECOMMENDATIONS • EVALUATE THE CONTROLS PROCESS • UTILIZE YOUR BOD • ADHERE TO BUDGETS AND FORECASTS • REVIEW DOCUMENTS FROM SOURCE • CONFIRM VALIDITY OF YOUR SUPPORTING DOCUMENTATION • REVIEW AUDIT TRAILS AND EXCEPTION REPORTS • MAINTAIN YOUR AR AND AP LISTINGS • MAINTAIN THE USER LISTS AND FUNCTIONS

13. REVENUE RECOGNITION CHANGES: ARE YOU READY?

14. NEW REVENUE RECOGNITION STANDARD (TOPIC 606) • EFFECTIVE DATE: • FOR ANNUAL REPORTING PERIODS AFTER DECEMBER 15, 2018 (EXP Jan 2019 Jul 2019) • INTERIM PERIODS AFTER DECEMBER 15, 2019 (March 31, 2020) • PRINCIPLE BASED FOCUS VS RULES BASED • CONVERGES WITH INTERNATIONAL ACCOUNTING STANDARDS • NOT ALL REVENUE SOURCES WILL BE IMPACTED • REQUIRES FIVE STEP RECOGNITION PROCESS

15. WILL THIS APPLY TO CONTRIBUTIONS? • The new standard will not affect contributions as new guidance defines revenue as “inflows or other enhancements of assets of an entity or the settlement of liabilities (or a combination of both) from delivering or producing goods, rendering services or other activities that constitute the entity’s ongoing and major activities. • NO, due to the fact that a contribution is voluntary and nonreciprocal, it is scoped out.

16. POTENTIAL REVENUE STREAMS AFFECTED BY NEW STANDARD FOR NFP • MEMBERSHIPS • SUBSCRIPTIONS • SPONSORSHIPS • FEDERAL AND STATE GRANTS AND CONTRACTS • TUITION • PRODUCTS AND SERVICES • ROYALTY AGREEMENTS • CONFERENCES AND SEMINARS • ROYALTY AGREEMENTS • ADVERTISING

17. FIVE STEP RECOGNITION PROCESS • IDENTIFY THE CONTRACT WITH A CUSTOMER • IDENTIFY THE PERFORMANCE OBLIGATIONS IN THE CONTRACT • DETERMINE THE TRANSACTION PRICE • ALLOCATE THE TRANSACTION PRICE TO THE PERFORMANCE OBLIGATIONS IN THE CONTRACT • RECOGNIZE REVENUE WHEN (OR AS) EACH PERFORMANCE OBLIGATION IS SATISFIED

18. EXAMPLES

19. MEMBERSHIP ORGANIZATION • EXAMPLE: ORGANIZATION HAS MEMBERSHIP DUES FOR $500 • BENEFITS INCLUDE EDUCATIONAL OPPORTUNITIES; NEWSLETTER WITH FV OF $150

20. MEMBERSHIP ORGANIZATION • EXAMPLE: ORGANIZATION HAS MEMBERSHIP DUES FOR $500 • BENEFITS ONLY INCLUDE NEWSLETTER WITH FV OF $150

21. EVENT SPONSORSHIP • NON PROFIT HOLDS A EVENT IN WHICH SPONSORSHIP IS RECOGNIZED THROUGH LOGO PLACEMENT AT EVENT AND ANY ADVERTISEMENTS FOR EVENT. • RECOGNITION IS ONLY NOMINAL VALUE SO THUS SPONSORSHIP = CONTRIBUTION AND IT IS RECOGNIZED WHEN RECEIVED.

22. ARE YOU PREPARED? • DETERMINE ALL REVENUE STREAMS • EVALUATE CHANGE ON EACH STREAM FOR THE NEW STANDARD • CONSIDER HOW REVENUE WILL BE RECOGNIZED • OVER TIME • POINT IN TIME • DISCUSS WITH YOUR CPA, BOARD OF DIRECTORS, LENDERS, IT

23. SINGLE AUDIT UPDATE FOLLOW THE YELLOW BOOK ROAD

24. SINGLE AUDIT SCOPE • Is my entity subject to a Single Audit? • Applies to state, local government, Indian tribe, institution of higher education, or nonprofit organizations that expend federal award as a recipient or sub recipient (direct/ indirect) in excess of $750,000 • Revised single audit guidance: • Prior to update - $500,000 • OMB- 133  Uniform Guidance • Effective for fiscal years beginning on or after December 26, 2014.

25. SINGLE AUDIT OVERVIEW • What is a Single Audit? • Organization-wide audit of an entity (including both financial and compliance components) • Internal controls over financial reporting • Internal controls over compliance • Compliance • Its objective is to provide assurance to the US federal government and pass-through entities regarding the management and use of federal awards • Texas has a Single Audit Circular – applies to most state grants • Texas counties, governments, and larger municipalities. Does NOT apply to Texas school districts. • Mirrors/Similar to OMB-133 (Uniform Guidance)

26. TIMELINES • Single Audit should be performed annually • Must be submitted to the Federal Audit Clearinghouse within the earlier of 30 days after the receipt of the auditors reports or 9 months after year end.

27. Responsibilities: Auditee • As defined in OMB Uniform Guidance • Arrange for Single Audit – performed properly and submitted timely and follow proper procurement standards • Financial statements • SEFA (Statement of Expenditures of Federal Awards) • Follow up and design corrective action on audit findings • Provide the auditor with all information needed to perform audit • Maintain internal controls over federal programs • Comply with federal statues, regulations and terms of the federal award • Evaluate and monitor compliance and take prompt action if noncompliance is identified. • Complete/sign specified sections of Data Collection Form

28. SINGLE AUDITS SUBJECT TO REVIEW – BEGINNING 2018 • Uniform Guidance will require a federal study once every six years • Used for statistical data • Agencies are required to make recommendations to address noted issues • Results of reviews will be made public