Sisters of Charity Foundation of South Carolina

1. Financial Management & Fund Raising - Tips for Nonprofits in Tough Times Sisters of Charity Foundation of South Carolina Jackie F. Breland, CPA January 28, 2009

2. Session Objectives • Identify tools and resources for better financial management • Provide tools and tips for surviving tough times • Provide ideas on fund raising and revenue diversification

3. Tools and Resources for Better Financial Management • Identify best practices associated with financial management and stewardship • Review tools to support best practices

4. Financial Management: Principle • Nonprofits should be knowledgeable and responsible stewards in managing their financial resources

5. To be a responsible steward, this requires: • Compliance with legally mandated financial requirements • Adherence to sound accounting principles • Adherence to sound principles that ensure fiscal responsibility and trust • Effective internal controls • Effective and efficient use of resources • Clear, documented policies and procedures to monitor sources and uses of funds

6. Financial Management: Best Practices • Has system of internal controls • Secures an audit or annual review • Financial results reported accurately & timely • Has documented policies & procedures • Has an audit committee • Adheres to risk management plan • Operates under board- approved budget or financial guidelines • Some board members have financial expertise • Has board-approved investment policy • Form 990 reviewed by board annually

7. Internal Controls • Four primary internal control objectives: • Safeguarding of assets • Compliance with laws and regulations • Reliability and integrity of information for financial reporting • Economical and efficient use of resources

8. Internal Control Consists of Five Interrelated Components • Risk assessment • Control environment • Control activities • Information & communication • Monitoring

9. Internal Control: Key Concepts • Internal control is a process. It is a means to an end, not the end in itself. • Internal control is effected by people. It’s not merely policy manuals and forms, but people at every level of an organization.

10. Fraud-Specific Internal Controls • Two major types of internal controls = active and passive • Active controls = seek to prevent fraud from occurring • Passive controls = seek to deter fraud by significantly increasing the risk of discovery

11. Fraud-Specific Internal ControlsTwo major types of internal controls = active and passive • Active controls = seek to prevent fraud from occurring • Segregation of duties • Separation of functions • Physical asset control • Physical restraints (e.g., locked file cabinets) • Document matching & pre-numbered forms • Signatures, PINs • Passive controls = seek to deter fraud by significantly increasing the risk of discovery • Audit trails • Review processes and procedures • Focused audits / Surprise audits • Surveillance of key activities • Rotation of key personnel

12. Other Examples of Internal Controls • Job descriptions • Written policies and procedures • Account reconciliations • Required vacations of all personnel • Budget versus actual variance analysis • Comparison of actual financial results to prior year • Pre-screen employees • Background checks • Review write-offs of accounts receivable • Keep good records • Talk with employees • Surprise audits

13. Roles and Responsibilities in an Internal Control System • Everyone in an organization has responsibility for internal control. • Management • Ownership of the system • “Tone at the top” • Board of Directors • Governance, guidance and oversight • Can identify problems and intervene if management overrides internal controls • Other personnel / staff • Should be explicit part of everyone’s job description • All personnel should be responsible for communicating upward problems in operations, noncompliance with code of conduct, policy violations or illegal actions • Do you have a whistleblower policy in place? • External parties – can they affect your internal controls?

14. Fraud Prevention • Why should we address fraud • Why does fraud occur • Potential impact from fraud • Fraud can increase during a recession

15. Financial Warning Signs of Fraud • Unexplained variances between budgeted and actual amounts • Large liabilities related to unexpected contracts • Significant internal control issues reported by external auditors • Appearance of staff living beyond their means • Abnormal changes in account balances

16. Financial Warning Signs of Fraud • Unusual write-offs or other “out of the ordinary” transactions • Shortages in cash, investments or other assets • Complaints from clients • Infrequent or late financial reports • Accounting staff is behind 3-4 months on preparation of monthly bank reconciliations

17. Internal Controls & Fraud Prevention – Tools & Resources • Tools: • Detailed Internal Control Checklist • Segregation of Duties in Small Organizations • List of Internal Controls • Resources: • www.coso.org • www.aicpa.org

18. Secures an Audit or ReviewHas an audit committee • Depends upon size of organization • Other procedures can be performed • Review • Compilation • Agreed-upon procedures

19. Financial Results Reported Accurately and Timely • Monthly or quarterly financial statements prepared on GAAP basis. • Audited financial statement within 90 to 120 days of year end • Are there significant differences between audited and internally-prepared financial statements?

20. Has documented policies and procedures • Financial policy and procedure manual for accounting procedures • Employee manual • May want to have policies reviewed by both your CPA and attorney

21. Adheres to a Risk Management Plan • Risk management is the discipline for dealing with uncertainty. • Risk management incorporates a decision-making process to determine how best to deal with the potential for loss. • Risk management focuses on risk as it relates to a NPO’s core assets: its people, property, income and goodwill • The risk management program: • Understands the risks that are inherent within and outside of the organization, and • Empowers staff to make good choices in dealing with those risks.

22. Risk Management Process • There are five steps in the risk management process:* • Establish the context • Appraise (identify and measure) risks • Decide what to do and communicate your decision • Act on your decision • Follow up and adjust *Enlightened Risk Taking: A Guide to Strategic Risk Management for Nonprofits, 2002, by the Nonprofit Risk Management Center, p. 17.

23. Risk Management Plan • Once you go through the risk management process, an output of that process is the development of a risk management plan. • It is important to document decisions reached regarding protecting the NPO’s mission-critical assets. • The plan should be updated annually, and it should take into scope the NPO’s activities and resources.

24. Operates under board-approved budget or financial guidelines • A nonprofit organization should operate in accordance with an annual budget approved by the board. The budget process includes steps to ensure that the budget is consistent with the organization’s vision, strategic direction, mission and values • Use a budget calendar • Perform budget variance analysis and reporting monthly

25. Some board members have financial expertise • Members with financial expertise could include CPAs, bankers, investment advisors. • Seek outside, professional advice as necessary.

26. Has board-approved investment policy Policy should: • Ensure reasonable returns balances with investment prudence. • Be customized to particular goals and needs of the organization. • Be reviewed at least on an annual basis.

27. Form 990 Reviewed by Board Annually • Best practice includes having the IRS federal Form 990 reviewed annually with the board to ensure their familiarity with the content. • Form 990 has undergone “major surgery” in 2008 (for returns filed in 2009) to enhance transparency and promote compliance.

28. Other Tax and Regulatory Requirements • Other areas to focus on: • Payroll tax reporting (Form 941) • Information reporting (Form 1099) • Providing information to donors • State regulatory compliance (Annual registration statement and financial report filing)

29. Tools and Tips for Surviving Tough Times • Evaluate your current situation • Strengthen oversight and accountability • Keep getting your message out • Maintain or accelerate fund raising efforts • Cost saving tips

30. Evaluate Your Current Situation • Revisit your mission statement • Evaluate current funding sources • Evaluate programs for effectiveness and efficiency • Assess effect of funding cuts on clients and community • Protect what you have

31. Strengthen oversight and accountability • Evaluate internal controls • Ensure compliance with funding source requirements • Implement best practices • Correct audit deficiencies from prior years • Demonstrate to public that you are fiscally responsible

32. Benefits of Strong Financial Oversight and Accountability • Better opportunities for future funding • Grant funding • Donations from the public • Financially healthy organization • Strong, documented internal controls • Accurate and timely financial reporting • Use of budgets • Effective risk management • Use of an audit committee • Appropriate insurance coverage • An engaged Board of Directors who understand the financial challenges of the organization • Preparation for external financial audits • Compliance with laws and regulations • More effective programs and services • An organization better positioned for future growth!

33. Keep getting your message out • Create ambassadors for your organization • Use staff, board members, clients, supporters • Make sure they know your mission • Update website • Speak to community groups • Use media to get message out about critical services you provide

34. Maintain or Accelerate Fund Raising Efforts • Do not cut back on fund raising • Stay in touch with current and prior donors • Let donors know you need help • Get creative

35. Cost Saving Tips • Overhead • Share space with another organization • Lease out space (conference room, extra office) • Reduce energy consumption • Move to a smaller space • Look at “backroom” costs • Staff development • Attend local seminars • Use on-line training • Bring in-house

36. Cost Saving Tips • Reduce mailing and paper cost • Review lists for duplicate addresses and names • Consider electronic communications • Take advantage of reduced postage rates for eligible organizations; bulk mailing and mail sorting • Send out lower cost mailings • Cut cost but DON’T ELIMINATE

37. Cost Saving Tips • Take advantage of non-profit status • Property tax exemptions • Purchase from Prison Services • Use www.techsoup.org for software purchases • Buy in bulk • Cut hiring costs; Use online service to post jobs instead of an employment agency

38. Cost Saving Tips • Look at increasing insurance deductibles, but maintain adequate coverage. • Delay asset and infrastructure expenses. • Don’t defer necessary maintenance • Seek in-kind contributions • Use teleconferencing to cut travel costs

39. Tips on Fund Raising and Revenue Diversification • Maintain or increase fund raising efforts • Call on key funders and reaffirm their commitment to your organization • Maintain contact with current and former donors • Identify existing and potential donors that have not been as hard hit by recession • Use the financial crisis to your advantage

40. Tips on Fund Raising and Revenue Diversification • Evaluate fund raising events • Eliminate what is not making money • Scale down big galas • Look for new opportunities, new sources • Get your board involved • Make it easier for people to give • Ask donors to release restrictions

41. Tips on Fund Raising and Revenue Diversification • Seek in-kind contributions from corporations for certain kinds of property eligible for special tax benefit under Section 170(e)(3) of the tax code. • Special rule that encourages corporations to donate certain types of property or inventory to be used for “care of the ill, the needy, or infants”..corporations get increased deduction

42. Tips on Fund Raising and Revenue Diversification • New Strategies • Look at what you do best – it may be marketable • Use website • Provide links to businesses that give you a percentage of sales coming from your website • Form partnerships with corporations

43. Tips on Fund Raising and Revenue Diversification • Consider merging with other organizations with a similar mission. • Make use of internet resources: • Fieldstone Alliance • National Council of Non-Profit Organizations • SCANPO

44. CONCLUSION • STAY POSITIVE – recessions are always temporary • Take action, don’t sit back and wait for the worst to happen • The key is for your organization to survive and even thrive in these tough times.

45. Publications and Sources • Coping with Cutbacks, The Nonprofit Guide to Success When Times are Tight, by Angelica and Vincent Hyman • The Mckinsey Quarterly, a business journal that has free articles including Doing Good by Doing Well, http://themckinseyquartley.com • Fieldstone Alliance, http://www.fieldstonealliance.org • Opportunity Knocks, http://opportunityknocks.org • Gifts International, http://www.giftsinkind.org • U.S. Postal Services, http://www.usps.com/prices/

46. Publications and Sources • SC Prison Industries, http://www.scprisonindustries.com • Spiderphone, http://www.spiderphone.com • Sightspeed, http://www.sightspeed.com