Financial Management for Non-Profit Finance Staff The Painless, - - PowerPoint PPT Presentation

Financial Management for Non-Profit Finance Staff

The Painless, Common-Sense Approach

Learning Objectives

• Describe the role that finance staff play in budgeting and

financial management

• Understand the importance of the fiscal budgeting

process, the principles of preparing a well-designed budget, and how to develop a budget system

• Learn how to use a variance analysis to spot unfavorable

trending and manage costs

• Understand how to effectively communicate financial

information at each level of the organization

• Describe the different types of audits and the

circumstances under which they would apply

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• Define fraud and describe ways that fraud can be

perpetrated and prevented

• Discuss the most important elements of an internal control

system and how financial controls evolve as an organization matures

• Understand how to prepare an accurate CIC Cash Flow
• Learn how to develop a system to track and monitor funded

expenses, and manage slippage and overages

• Understand the organization’s obligations under a

Contribution Agreement and the processes associated with claiming expenses

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Learning Objectives

Financial Management Who Does What?

• Treasurer: Chair of finance committee; liaison between board

and finance committee; board financial expert

• Finance Committee: Performs financial work of the board; vets

budget and financial reports at detail level; investigates variances; makes recommendations to the board through the treasurer

• Executive Director: Manages and monitors organization budget

and budgeting process

• Finance Staff/Bookkeeping: Prepares organization for budgeting

process; develops organization budget with input from executive director and program staff; prepares financial reports, analyzes and explains variances; owns budgeting system

50,000 feet 1,000 feet

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• 80/20 rule as it applies to finance-related duties in contrast to

non-finance staff; finance will always be more conversant in this area than non-finance colleagues

• Most board members, executive directors, program managers/

coordinators do not have any training in finance

• Finance plays a pivotal role in giving financial data meaning;

helping others to use this information to make sound decisions

• Talk about financial management often and in a manner that

demystifies it and encourages understanding

• Take advantage of opportunities to coach others on financial

management

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Your Role as Financial Advisor

The Key to Financial Management

• The single most important tool in financial management

is the organization’s budget

• Organization’s primary financial control mechanism
• Use a system for developing the budget which allows

for effective analysis and revisions

• Invest sufficient time in the budgeting process
• Coach others on how to budget correctly

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Budgeting: 3 Steps to Success

Step 1: Preparation and Development

• ‘Zero- based’ budgeting with substantiated assumptions
• Consider historical trending
• Do your research - don’t guess about your costs or revenue generating

capabilities

• Record and save details on each budget line item for reference later on
• Your budget line items should match the accounts in your bookkeeping system

and correlate with your audited statements

• Restate your annual budget by month and consider program activities and

seasonal variances (don’t just divide by twelve)

• Plan for carry-overs from previous years, such as deferred revenue and

expenses

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Budgeting: 3 Steps to Success

Step 2: Monitoring and Management

• Prepare and review a budget variance report every month
• Expect few variances if the budget is well prepared
• Explain all significant variances; act on those that could jeopardize the

year-end outcome

• Know the unit cost for each type of service
• Know the high risk areas of the budget and have a contingency plan

Step 3: Oversight

• Review major budget assumptions for prudence
• Be wary of ‘hockey stick’ forecasting, especially with fundraising income
• Control performance and sustainability through analysis of significant

variances and trending

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Roles in Budgeting

    

         

                          



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The Annual Budgeting Process

• The budget is too important to put together without

adequate planning, preparation and consultation

• Create a project plan for the annual budgeting process
• Back up your timeline from the date that the budget

must be approved by the board

• Factor in time for vetting through the finance committee
• Involve key internal stakeholders
• Communicate the plan widely to staff and the board

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Salary Grid Reserves & Investments Allocation

• f

Personnel Detail of Benefits Central Administration Costs Program Costs By Funder Consolidated Budget

A Budgeting System That Works

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Salary Grid Details of Benefits

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Current Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Executive Director No range No range, negotiated salar negotiated salary

• tiated salary

Manager $55,000 $56,100 $57,222 $58,366 $59,534 $60,724 Coordinator $45,000 $45,900 $46,818 $47,754 $48,709 $49,684 Program Assistant $36,000 $36,720 $37,454 $38,203 $38,968 $39,747 Students/Interns $22,000 $25,480 $29,120 $32,760 Manager $30.22 $30.82 $31.44 $32.07 $32.71 $33.37 Coordinator $24.73 $25.22 $25.72 $26.24 $26.76 $27.30 Program Assistant $19.78 $20.18 $20.58 $20.99 $21.41 $21.84 Students/Interns $12.09 $14.00 $16.00 $18.00

Benefit Rate Max % CPP 4.95% up to $48,300 ($3,500 Exemption) $2,217.60 4.95 EI 1.78% x 1.4 = 2.492% up to $44,200 $1,101.46 2.49 WSIB $.77 per $100 0.77 EHT 1.95% $400,000 Exemption 1.33 Group Health 7% 7.00 RRSP 2% 2.00 Total 18.54

A Budgeting System That Works

Allocation of Personnel

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Name Position Last Year’s Salary This Year’s Salary This Year’s Actual Hourly Rate CIC MCI United Way Trillium Other Income Total Funded Variance Funding Ratio

Program Assistant $36,000 $27,000 $19.78 $9,000 $9,000 $8,000 $26,000 $1,000 96% Total Salaries Total Benefits Group Health RRSP Statutory WSIB Total Salary & Benefits

A Budgeting System That Works

• Calculate total, annual Central Administration costs
• Fairly and equitably allocate these total costs by funder/program
• Rationale for allocated must be documented, clear and substantiated:
• Based on actual costs:
• Actual expenditures and staff time records
• Time consuming with considerable record-keeping
• Difficult to deal with shared resources
• Based on a cost factor or rate:
• Number of full-time project staff (FTEs)
• Program direct costs as a % of total direct costs
• Program funding as a % of total organization’s funding

Calculating and Allocating Central Administration Costs

A Budgeting System That Works

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Program Costs By Funder

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Organization Detailed Budget Fiscal Year ______________ Last Year’ Budget This Year’s Budget Changes Defer to Next Year CIC MCI United Way Trillium Other Income Total Funded Income Citizenship and Immigration Canada Ministry of Citizenship and Immigration United Way Trillium Fundraising Donations Memberships Total Income Expenses Program Expenses Salaries and Benefits Staff Development Staff Travel Board Expenses Meeting Expenses Program Supplies Participant Travel Honouraria Central Administration Audit Bank Charges Insurance Equipment Rental and Repair Rent and Utilities Telephone, Fax and Internet Total Expenses Transfer to Reserves Surplus (Deficit)

A Budgeting System That Works

Reserves

Reserve Fund Requirements (calculate annually): Unrestricted + Internally Restricted = 3 to 6 Months of Committed Operating Expenses, or Shut-Down Costs

Investments

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A Budgeting System That Works

Type of Fund Balance at End of Last Year (A) Required Balance at End of Current Year (B) Variance (B-A) Unrestricted Internally Restricted Externally Restricted Total Investment # Amount Term Rate Maturity Date 04799-9687883 FLGIC-000192 $40,000 1 Year Non-Cashable 2.75% 8-Sep-12 00120-6359434 ERGIC-001847 $25,000 3 Year Cashable 2.65% 16-Feb-13 BRGIC - 00041 $50,000 1 Year Non-Cashable 2.30% 1-Jun-12 VRGIC - 00037 $35,000 Cashable 1.90% 3-Dec-12 Estimated Value at Year-End $150,000

Consolidated Budget

Approved annual budget should be apportioned by month in accordance with program activities and seasonal variances (don’t just divide by twelve)

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Organization Summary Budget Fiscal ______________

Last Year’s Budget This Year’s Budget $ Change % Change % of Total

Income Government United Way Foundations Self-Generated Total Income Expenses Staffing Board and Volunteer Direct Program Central Administration Total Expenses Transfer to Reserves Surplus (Deficit)

A Budgeting System That Works

• Explain all significant variances each month (5 - 10% off budget)
• The more accurate the budget (especially monthly), the fewer the variances
• Take action promptly on a significant variance that recurs two months in a

row

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Variance Reporting

Monthly V Monthly Variance Analysis nce Analysis nce Analysis

Monthly V Monthly Variance YTD Va YTD Variance Account Monthly Budget Monthly Actual $ % YTD Budget YTD Actual $ % Variance Explanation $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0% $ 0%

Communicating Financial Information

The Inverted Triangle

Reports to Full Board Reports to Executive Director and Finance Committee Reports to Project or Functional Managers

Highest Lowest

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Level

• f

Detail

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Communicating Financial Information

Managers/ Coordinators

• Detailed Program Actuals vs. Budget, by Month and YTD

Executive Director & Finance Committee

• Detailed Organization Actuals vs. Budget, by Month and YTD
• Detailed Balance Sheet
• Detailed Cash Flow Forecast

Board of Directors

• Consolidated Organization Actuals vs. Budget, YTD
• Consolidated Organization Balance Sheet
• Consolidated Cash Flow Forecast

Financial Report Distribution

Understanding Audits

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Type of Audit Responsibility for Preparing Financial Statements Purpose Degree of Assurance

Audit Engagement (full audit) Organization Detailed analysis of financial statements to ensure they are presented fairly, and in accordance with Generally Accepted Accounting Principles (GAAP). Review existence and effectiveness of financial controls. High Review Engagement Auditor Analysis of financial statements to ensure they are plausible and consistent with GAAP. Medium Compilation Engagement Auditor Statement preparation only. No review performed. None

Auditors or Chartered Accountants (CA) can be engaged to provide three types of services in relation to your organization’s financial statements:

• Audit Engagements
• Review Engagements
• Compilation Engagements

Fraud

Common Examples

• Payroll fraud
• Assets misappropriated
• Intercepting or diverting resources coming to organization
• Skimming cash before recorded in accounting system
• Expense reimbursement fraud
• Fraudulent billing
• Using office to get unauthorized benefit (bribes, self dealing transactions,

conflicts of interest)

• Falsification of organizations financial statements
• Steals confidential information to apply for credit card or loan
• Fraudulent use of official donation receipts

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Prevention

• Oversight (board and finance committee)
• Appropriate financial controls
• Internal spot audits
• External audit
• Encourage employees to come forward
• Encourage vendors and clients to report

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Fraud

Financial Controls

Important Elements of an Internal Control System

• 1. Control cues (lead by example)
• 2. Policy communication
• 3. Segregation of duties
• 4. Record keeping
• 5. Budgets
• 6. Financial reporting/analysis

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McLaughlin, Thomas A., Streetsmart Financial Basics for Nonprofit Managers, 3rd ed. (Hoboken, New Jersey: John Wiley & Sons, Inc.

Building Capacity through Financial Management: A Practical Guide by John Cammack 25

Financial Controls

Stage of Development Characteristics Required Financial Controls Early Life Group of volunteers; no commitments beyond immediate work; local fund-raising; no funder; whole group acts as the management Two signatures on cheques Growing Up A few paid staff; rented premises; few financial commitments;

• ne funder; management committee formed

Early life controls, plus Basic controls Adulthood More paid staff; own premises, equipment, and vehicles; financial commitments to beneficiaries; several funders Growing up controls, plus Comprehensive financial controls and written financial procedures Maturity Many paid staff, premises, vehicles, and equipment; financial commitments to partners; many funders Adulthood controls, plus Detailed financial controls throughout organization

Segregation of Duties Effective internal controls are about common sense and a system

• f checks and balances:

“No financial transaction is handled by only one person from beginning to end. This principle, called segregation of duties, is central to an effective internal controls system. Even if your staff is small, duties can be divided up between paid staff and volunteers to reduce the opportunity for error and wrongdoing.” e.g. Bookkeeper should not sign cheques because he/she prepares cheques)

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Alliance for Nonprofit Management, http://www.allianceonline.org/FAQ/financial_management/what_is_internal_accounting.faq

Financial Controls

Top 10 List of Controls 1. Signing Authority 2. Bank Accounts 3. Cash Transactions and Deposits 4. Use of Organization Credit/Debit Cards 5. Cheque Control 6. Schedule of Reporting 7. Annual Budgets and Spending Limits 8. Retention of Records 9. Donations and Receipting

• 10. Independent Review or Audit

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Financial Controls

• 1. Signing Authority
• Finance staff as signatories (segregation of duties)
• Number and mix of signatories
• Limits
• Exceptions for fixed expenses
• 2. Bank Accounts
• Number and type of accounts
• Access
• Minimum balances
• Interest generation and investing
• Borrowing, lines of credit
• Approval and spot-checking of reconciliation

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Financial Controls

• 3. Cash Transactions and Deposits
• Receiving, handling, and logging (segregation of duties)
• Endorsement of cheques
• Security (pre-deposit and at deposit)
• Cash collection at off-site events
• Petty cash/program advances
• 4. Use of Organization Credit/Debit Cards
• Organization cards vs. personal cards
• Eligibility and issuance
• Types of purchases
• Limits and approvals
• Transactions, receipts and statements

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Financial Controls

• 5. Cheque Control
• Pre-signing of cheques
• Void cheques
• Physical control and security
• Cheque stock/format
• Electronic signatures/imprinters
• 6. Schedule of Reporting
• Regular accounting cycle
• Fixed dates for financial reports
• AGM and stakeholder communication

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Financial Controls

• 7. Annual Budgets and Spending Limits
• Integrated organization planning cycle
• Defined roles and responsibilities
• Revisions and updating
• Spending limits for each role
• 8. Retention of Records
• CRA compliance (charities)
• Legislative requirements
• Physical security, storage and protection
• Data back-up and recovery

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Financial Controls

• 9. Donations and Receipting (Charities)
• Protecting charitable registration number
• CRA compliance
• In-kind donations
• Physical security/control of receipts
• 10. Independent Review or Audit
• Type of audit
• Selection of auditor/auditing firm
• Rotation of principal auditor
• Auditing OR regular accounting, not both
• Year-end auditing process

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Financial Controls

Important, related controls:

• Insurance coverage
• Business expense claims (travel, meals, mileage)
• Contractual/lease obligations
• Technology (passwords, asset security)
• Procurement/tendering
• Trusteeships and partnering
• Reserve funds (number, type, calculation of requirements)
• Finance committee
• Business continuity and disaster recovery planning

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Financial Controls

Accounting Procedures How are the following types of accounting processes handled or recorded?

• 1. Revenue and Cash Receipts
• 2. Expenditures and Disbursements
• 3. Assets and Liabilities
• 4. Financial and Tax Reporting
• 5. Payroll and Related Remittances

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Financial Controls

Finance Committee (standing)

• Accountable to the board
• Treasurer (Chair) and at least two other directors
• Review, advise, monitor
• Approve budget and financial statements
• Whistleblowers policy
• Review external auditors
• Risk management

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Financial Controls

Principles of CIC Funding

Citizenship and Immigration Canada:

• Will reimburse for approved, eligible costs associated with

contracted services to eligible clients

• Is not intended to be the sole funding machine behind an
• rganization
• Is not the employer and will not pay costs such as termination

pay, severance or unused benefit entitlements

• Will not pay cancellation costs associated with third-party service

contracts or lease agreements

• Will not guarantee continued funding beyond current cycle
• Can cancel or reduce its commitment if available funds are

reduced by Parliament

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The Contribution Agreement

• Cost must be incurred and paid prior to claiming
• Costs can be claimed only if they relate to a particular line item on the

Contribution Agreement

• Claimed amounts must be net of any discounts, rebates or off-setting

income

• Maximum amounts (any line item) indicated on the Contribution

Agreement cannot be exceeded without prior written approval by CIC

• Funds can be moved from one line item to another up to $1,000 (must

be communicated to CIC Settlement Officer)

• All claimed amounts must be substantiated by supporting documents
• Ownership of CIC-funded assets rests with the service provider,

however they cannot be disposed of without approval by CIC

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CIC Cash Flow Preparation

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• Do not just divide the annual totals per line item by twelve
• Base monthly amounts on work plan and number of

program delivery weeks per month

• For salaries and benefits consider; number of pay periods per

month, recruitment time for new hires, seasonal/peak period labour, and RRSP payments

• Anticipate large, single expenses such as events, consulting

fees, capital asset purchases, and the audit

• Consider schedule of payments to partners

Expense Tracking

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Cash Flow



(monthly) Expense Ledger (monthly) Claims



(monthly) Variances (monthly) Schedule 2



(per year)

• Administration
• Program
• Childminding
• Transportation
• Capital
• HST
• Salary
• Benefits
• Non-salary
• Create at start of

each funding year

• Use a system that

tracks the forecast, actuals (claims) and variances, each month

• Create detailed

ledger of all relevant expenses paid for the month

• Print copy each

month as back-up to claim

• Enter expenses

from ledger to tracking sheet

• Transfer

information to CIC claim form

• Report on

variances by category (for the month and year- to-date)

 Form provided by CIC

Managing Slippage and Overages

Identify Analyze Plan C

• m

m u n i c a t e Act Understand Cause(s) for Variance(s) Develop a Plan to Resolve Variance(s) Communicate Plan to CIC (Activity Report) Prepare Claim and Variance Report Take Action to Resolve Slippage or Overages

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Monthly CIC Reporting Requirements

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Due by the 10th* of each month, for the previous month:

• Claim Form 
• Statistical Form
• Activity Report
• CIC Forecast of Cash Flow/Variance Report  (If

applicable)

• CIC Slippage Report  (If applicable)

* Year-end reports typically are due earlier in the month

 Form provided by CIC

Common Reasons for CIC Claim Problems

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• Claims for expenses that are incurred but not paid
• Claims based on cash flow, instead of actual expenditures
• Over claiming maximum amount allowed in Contribution Agreement
• Claims for costs that have not been approved by CIC (seek approvals

in advance and keep all documentation)

• Claims based upon inappropriate ‘movement’ of costs from one line

item to another

• Lack of supporting documentation for claimed amount
• Claimed amount not directly related to the program or otherwise

considered ineligible

• Claims based upon costs in an Amendment that is not finalized

CIC Program Monitor

• Monitors are mini-audits of CIC-funded programs, conducted by the Settlement Officer;

they typically cover a specific time frame (2 - 4 months)

• In preparation for the monitor, compile, print or make available the following:
• Approved Contribution Agreement with Schedules, and Amendment(s), if applicable
• General ledger for monitored program and applicable time period
• Supporting documentation for all claimed amounts
• Applicable bank statement(s), cancelled cheques, expense ledgers, and financial

reports

• Lease agreement for space rental and office equipment
• Personnel policy
• For funded wages and salaries, payroll records, timesheets/attendance records, proof
• f WSIB, EHT and CRA remittances, and proof of benefit costs payment(s)
• Details on rationale for allocating Central Administration costs
• Current and separate list of funded capital assets including date of purchase, make,

model, and serial number

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CIC Program Monitor

• If providing transportation assistance to clients, provide the

transportation log showing who received the token/ticket, invoices and proof of payment for purchasing tickets

• If claiming staff travel, provide the travel log that clearly indicates the
• rigin and destination, mileage, date, time, and purpose of travel
• If the funded item is cost-shared with other funders, provide details on

rationale for claimed amount

• Demonstrate how the HST claim is calculated, taken into

consideration eligible HST rebates

• Provide copies of correspondence or file notes relating to CIC

discussions/approvals for special arrangements, changes or modifications

• Organization also may be subject to a full audit (Audit Engagement)

by CIC

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Thank You

• Questions?
• Session Evaluation
• Finance Manual
• Blog
• Contact Information:
• Gina Vergilio
• gina@gvconsult.ca
• www.gvconsult.ca

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