Leadership&Financial Literacy20112

Leadership and Financial Literacy

Prepared by Lauricella and AssociatesSeptember 2011

Slide 2DRAFT

GOALS

Financial literacy as a tool for nonprofit leadership

1. Nonprofit boards• Roles and responsibilities• Modes of operation/Types of decisions

2. Overview of a variety of financial tools-more than budgets!

3. How different financial tools fit the different board roles

Slide 3DRAFT

NON PROFIT BOARDS

OVERVIEW: What are the basic responsibilities of nonprofit boards?– By: BoardSource

Ten Basic Responsibilities of Nonprofit Boards

1. Determine mission and purpose. It is the board's responsibility to create and review a statement of mission and purpose that articulates the organization's goals, means, and primary constituents served.

2. Select the chief executive. Boards must reach consensus on the chief executive's responsibilities and undertake a careful search to find the most qualified individual for the position.

3. Support and evaluate the chief executive. The board should ensure that the chief executive has the moral and professional support he or she needs to further the goals of the organization.

4. Ensure effective planning. Boards must actively participate in an overall planning process and assist in implementing and monitoring the plan's goals.

5. Monitor, and strengthen programs and services. The board's responsibility is to determine which programs are consistent with the organization's mission and monitor their effectiveness.

Slide 4DRAFT

NON PROFIT BOARDS

What are the basic responsibilities of nonprofit boards? (continued)

6. Ensure adequate financial resources. One of the board's foremost responsibilities is to secure adequate resources for the organization to fulfill its mission.

7. Protect assets and provide proper financial oversight. The board must assist in developing the annual budget and ensuring that proper financial controls are in place.

8. Build a competent board. All boards have a responsibility to articulate prerequisites for candidates, orient new members, and periodically and comprehensively evaluate their own performance.

9. Ensure legal and ethical integrity. The board is ultimately responsible for adherence to legal standards and ethical norms.

10. Enhance the organization's public standing. The board should clearly articulate the organization's mission, accomplishments, and goals to the public and garner support from the community.

» References» Richard T. Ingram, Ten Basic Responsibilities of Nonprofit Boards, Second Edition (BoardSource 2009).

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EFFECTIVE BOARD LEADERSHIP

STRATEGIC

•Establish organizational priorities

•Develop approaches and tactics

•Deploy resources

•Review performance

FROM OrgA to OrgA+

GENERATIVE

•Focus on purpose

•Discern problems

•Rethink and reframe work of the organization

CREATING a new Orgz

FIDUCIARY

•Faithful to mission

•Accountable for performance

•Compliant with relevant laws and regulations

STEWARDSHIP of OrgA

Governance as Leadership by Richard Chait, William P. Ryan and Barbara E. Taylor

FIDUCIARY

•Faithful to mission

•Accountable for performance

•Compliant with relevant laws and regulations

STEWARDSHIP of OrgA

Balances three modes of governance

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FINANCIAL TOOLS

CONTENTSINDEPENDENT AUDITORS’ REPORT 1

FINANCIAL STATEMENTS

Statement of Financial Position 2

Statement of Activities 3

Statement of Functional Expense 4

Statement of Cash Flows 5

NOTES TO FINANCIAL STATEMENTS 6 -10

1. Reviews and verifies the financial books of organization

2. Demonstrates that funds were used appropriately

3. Transparency4. Over $500,000 audit

Annual Audit or Review

Sample Audit table of contents

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FINANCIAL TOOLS

Balance Sheet

1. Snap shot2. Assets=Liabilities + Equity3. Status of your accumulated

profits at a fixed point in time

“How well has the organization done?”

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Profit & Loss

1. Income-Expense = Profit (Loss)

2. Income earned over a period of time

3. The costs (expenses) of earning the revenue during that period

“How well is the organization performing?”

FINANCIAL TOOLS

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Profit & Loss

4. Various amounts of detail-provide detail at level that audience can manage

5. Develop for program, project or organization

FINANCIAL TOOLS

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Statement of Functional Expense

“What programs are we spending our $$$

on?”

1. Allocation of expenses by program and operations

2. Identify key programs

FINANCIAL TOOLS

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Statement of Cash Flows

“Can we pay our bills?”

1. Cash/liquidity2. Inflows and outflows of

cash or cash equivalents3. Operations, investing &

financing

FINANCIAL TOOLS

Slide 12DRAFT

Monthly Cash Flow

1. Developed after budget2. Forecast activity3. Various timeframes4. Adjusted depending on

need

“When is our money coming?” or “When do I have to pay this bill?

FINANCIAL TOOLS

Slide 13DRAFT

Project Budget to Actual

1. Project or Organization2. Developed after project/period3. Measure performance4. Management tool

“How did it work out?”

Budget

1. Planning tool2. Forecast spending and expense

“What are my planned expenses?”

FINANCIAL TOOLS

Slide 14DRAFT

Next

Different roles and different decisions attempt to answer different questions

This means different tools

Slide 15DRAFTFIDUCIARY

STEWARDSHIP

Financial tools

1. Yearly audit (or review)1. Notes2. Management letter

2. Statement of Functional expense3. P&L4. Operating budget

Faithful to mission

Accountable for performance

Compliant with relevant laws and regulations

Slide 16DRAFT

STRATEGIC

Tactics Financial tools

1. Operating budget

2. Budget to actual

3. Profit and Loss

4. Sources and Uses

Establish organizational priorities

Develop approaches and tactics

Deploy resources

Review performance

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Out of the box Financial tools

1. Balance sheet

2. Cash flow

Focus on purpose

Discern problems

Rethink and reframe work of the organization

GENERATIVE

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PRACTICE

Case 1You are the ED of a theater and you have the chance to relocate and lower

your rent? You are not sure this is a good idea and you want to talk with your board of directors.

– You have been in your current location for over 18 years– You have been the ED for the entire 18 years– Rent has been steadily increasing– Subscriptions have been decreasing slowly for the last five years and took a

precipitate drop last year.– The new location is not in your neighborhood and is part of new performing arts

complex.

Slide 19DRAFT

PRACTICE

Case 2You are a board member of a theatre company with a national reputation that

was recently forced to close. The manager that was hired was never able to adequately take over. The financial issues that surfaced were very public and you felt blindsided. You are leading a transition committee to define next steps and a “new plan”.

– The founder had recommended her replacement who was subsequently fired– After a successful public capital campaign for $750,000 was completed it was

discovered that this amount of money was a drop in the bucket: it would only cover 3 months of operation

– The endowment was raided twice for operating funds and was recently depleted to pay off a line of credit

– The season was not completed and ticket holders were not compensated

Slide 20DRAFT

PRACTICE

Prepare a briefingWhat are the key questions?

What financial information would you use to brief the board or your team?