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• Duties of Care, Loyalty, and Obedience• Financial Oversight• Personnel• Board Development• Fund Development• Strategic Planning• Program Performance• Advocacy
• Finance and Program cannot be separated-They are interconnected
• Community Action Agencies build our organizations for Mission and Community Impact
• Every decision CAA leaders make impacts both financial and programmatic sustainability, each impacts mission and money– Programmatic elements of sustainability– programs
are relevant and are having an impact– Financial elements of sustainability-CAA has
sufficient working capital for its needs and activities
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Source: Nonprofit Sustainability: Making Strategic Decisions for Financial Viability
Monthly Financial Reports• Report should compare Budget to Actual by program, with
variances noted– Use % if helpful– Revenue and Expense lines should match the approved
budget• Always include a Balance Sheet• Presented by the Treasurer• Cash Flow Report/Cash Balance• Large Accounts Receivables/Payables• Note Major Equipment Purchases• Include Investment Activity • Dashboards?• If Head Start: Credit Card Expenditures
Annual Audit• The Board selects the auditing firm• Bid out your audit every 5 years• The Board meets with the auditor• Ask Questions!• The board formally accepts the Audit• The board formally addresses all findings in the audit• Federal Audit Clearinghouse• Single Audit• It is only a snapshot in time-does NOT take the place of
regular oversight of fiscal status• It is only a sampling of fiscal activities
Duty of Care: A board member has the duty to exercise reasonable care when he or she makes a decision for the organization. Reasonable care is what an "ordinarily prudent" person in a similar situation would do.
Duty of Loyalty: A board member must never use information gained through his/her position for personal gain, and must always act in the best interest of the organization.
Duty of Obedience: A board member must be faithful to the organization's mission. He or she cannot act in a way that is inconsistent with the organization's goals. The board member is trusted by the public to manage donated funds to fulfill the organization's mission.
Internal control is a process overseen by the Board of Directors, and created and implemented by senior and other managers designed to provide reasonable assurance about achievement of the entities objectives.
Objectives of internal controls:• Effectiveness and efficiency of operations;• Reliability of financial reporting; and• Compliance with applicable laws and
Detective controls are designed to detect errors, fraud or illegal acts and allow for corrective action. Every system must have both preventive and detective controls. Examples
• Timely reconciliation of bank accounts including examining cleared checks for correct amount and payee
• Review of budget-to-actual financial reports by fiscal and program managers, and by the Executive Director and the Board of Directors.
Internal ControlsWays to Involve the Governing Board in Internal Control Activities
1. Reviewing & approving of monthly financial reports2. Reviewing & approving of monthly program reports3. Signing of checks4. Reviewing of monthly bank statements & cancelled checks5. Reviewing of monthly credit card statements6. Hiring of auditor7. Meeting with the auditor to discuss the audit8. Attending & being active at board meetings9. Being knowledgeable about the organization & asking questions10. Approving major procurements11. Reviewing & approving written financial procedures12. Approving annual compensation (salary schedule) & any incentive
compensation13. Following up on problems or findings
Financial training isn’t a one time thing. On an annual basis training should be supplied to the Board.
This can take the form of an annual meeting or could be done thru 5-10 minutes on the agenda of all Board meetings. If an organization can afford it, an outside contractor could be brought in once a year to lead an on-site training.
• Evaluate your organization’s needs and objectives to determine reporting as well
• Every organization is different and therefore has different financial reporting needs, reports differ based on:– Number of programs– Size of programs– Amount of non-grant activity– Financial condition– Funding source requirements
Any CAPComparative Statement of Financial PositionDecember 31, 2014 and 2015
2014 2015
Current assets:Cash and cash equivalents 1,021,837$ 351,018$ Grants receivable 671,605 1,054,138 Prepaid expenses and other assets 66,079 52,326
Total current assets 1,759,521 1,457,482
Property and equipment, net 247,898 326,421
TOTAL ASSETS 2,007,419$ 1,783,903$
Current liabilities:Line of credit 0 134,789 Accounts payable 240,419 450,789 Accrued payroll and related expenses 248,246 168,067 Accrued vacation 87,393 82,800 Grant funds received in advance 83,278 57,431
Total current liabilities 659,336 893,876 Long-term liabilities:
Notes payable 213,018 198,444
Total liabilities 872,354 1,092,320
Net assets:Unrestricted 500,818 256,565 Temporarily restricted 634,247 435,018
Total net assets 1,135,065 691,583
TOTAL LIABILITIES AND NET ASSETS 2,007,419$ 1,783,903$
CURRENT RATIO 2.72 1.83 1.56 This ratio computes CAP's ability to pay off current obligations with currentcurrent assets assets. The benchmark for this ratio is 1:1%. CAP has consistently been
current liabilities above the 1:1% benchmark which means the day to day operations are current assets divided by current liabilities being managed well.
PAY-OFF RATIO 9.3 10.3 4.6 This ratio computes the number of times CAP's existing cash balance can (cash + a/r) can pay off CAP's existing accounts payable balance. The benchmark for
accts payable this ratio is 3. CAP has consistently been above this benchmark which number of times cash + a/r can pay-off a/p overall is good but also may be an indicator that payables are being paid too
quickly.
AVERAGE DAYS CASH ON HAND 29.8 25.0 14.9 This ratio computes the number of days CAP has cash on hand to pay their cash & equivalents average daily expenses. In other words for 2015 assuming no cash collections,avg exp's per day CAP would run out of cash after approx. 15 days. The benchmark for this ratio is
avg number of days expenses in a cash 15-20 days. CAP has consistently averaged over 15-25 days which is positive.
AVERAGE DAYS IN ACCOUNTS RECEIVABLE 11.2 15.3 13.9 This ratio computes the number of days cash is tied up in accounts receivable.accounts receivable In other words for 2015, we have 13.9 days of revenue tied up in accounts receivableavg revenue per day The benchmark for this varies for most CAP agencies. Some states are better at
avg number of days revenue in account receivable funding grant reimbursement requests in a timely manner. CAP varying between10-16 days is better than average. Most of the time we see agencies in the 20-30day average.
AVERAGE DAYS IN ACCOUNTS PAYABLE 4.4 4.0 6.3 This ratio computes the average number of days it takes CAP to pay itsaccts payable vendors. The average benchmarks for this is 20-30 days. CAP's ratio is extremely
avg exp's per day low which indicates strong cash flow. However, CAP may be missing out onavg number of days exp's in accts payable opportunities by paying vendors too fast. Trend is better for current year but still low.
DEBT TO NET ASSETS RATIO 72.80% 58.62% 45.16% This ratio determines how leveraged the organization is. Anything over 100% total liabilities would be considered leveraged. Anything over 200% would start to be considered
total net assets highly leveraged. CAP has this ratio trending downward which is a positive sign.liabilities as a % of net assets Current year trend downward is due to paying off of long-term debt.
AVERAGE REVENUE PER DAY $49,402 $57,769 $63,267 This ratio computes on average the amount of revenue generated on any given daytotal revenue - in kind within the organization. In-kind is disregarded as this revenue does not involve cash
260 working days transactions. Average revenues vary among CAP agencies.
AVERAGE EXPENSES PER DAY $48,678 $54,513 $60,461 This ratio computes on average the amount of expenses generated on any given daytotal expenses - in kind within the organization. In-kind is disregarded as this revenue does not involve cash
260 working days transactions. Average expenses vary among CAP agencies.
ADMINISTRATIVE EXP'S TO TOTAL EXP'S 8.98% 7.64% 7.11% This ratio computes the percentage of expenses that are paid for management andadministrative + general exp's general activities versus program activities. The benchmark for this ratio is 10%
total expenses or less. CAP has consistently been below 10% and is trending downward. Alladministrative + general exp's as a % of total expenses good signs.
UNRESTRICTED NET ASSETS RESERVE 1.8 1.8 1.7 This ratio measures the long-term sustainability of the organization. CAP hasunrestricted net assets accumulated unrestricted reserves that is approaching 2 months worth of average
avg total expenses per month monthly expenses. This is a very respectable ratio. Most CAP agencies struggleavg number of months exp's in unrest net assets to obtain even a 1 month reserve. However looking at the 3 year trend, it is very
difficult to build up this reserve when your primary funding comes from cost re-imbursement grants. CAP should continue to look for ways to diversify funding.
REVENUE TO EXPENSE 101.45% 105.85% 104.52% This ratio measures if the organization was profitable or not. The benchmark fortotal revenue this ratio is 100%. CAP has had revenues exceed expenses for the last threetotal expense years. In these economic times, this is a very positive trend.
A nonprofit Board of Directors has many responsibilities; one of the most important is their fiduciary responsibility. In order to fulfill this core responsibility, the Board relies on the financial information provided by the finance department.
The finance department is responsible for providing accurate, reliable, and timely financial information, allowing the board to make their decisions.
At times, the fiscal director is equal parts compiler, teacher, and investigator as he or she prepares financials, explains financial results to the board, and investigates unusual financial information.