1. Session 1: Telling Your Financial Story
9/25/2012
Session 1: Telling Your Financial Story
Financial Management Training Program
Hilda Polanco, Founder & CEO
Rebecca Coker, Lead Consultant
September 29, 2016

2. Introductions & initiative overview
9/25/2012
Introductions & initiative overview
Organizational bingo? Some way for people to get to know each other from a mission / budget size place

3. Participating Organizations
9/25/2012
Participating Organizations G C A E
Don’t keep this in every session – only put in the first session B F D I H

4. Participating Organizations
9/25/2012
Participating Organizations
Organization
Budget
Mission
Arts Council
Napa Valley (A)
$350K
Arts Council Napa Valley provides leadership that unites, supports, and enhances our exceptional arts and culture community.
Community Health Initiative (B)
$900K
Community Health Initiative, Napa County (formerly Children's Health Initiative) was launched in 2005 to ensure that all children in our community have access to comprehensive, quality healthcare. 
Community Resources for Children (C)
$3.2M
The mission of Community Resources for Children is to provide resources for the early care and education of children in Napa County.
Connolly Ranch (D)
$750K
Connolly Ranch aims to encourage the next generation of environmental stewards by connecting children and families to nature through farm-based education.
Girls on the Run
Napa & Solano (E)
$320K
To inspire girls to be joyful, healthy and confident using a fun, experience-based curriculum which creatively integrates running.

5. Participating Organizations
9/25/2012
Participating Organizations
Organization
Budget
Mission
Greater Napa Valley Fair Housing Center (F)
$660K
Fair Housing Napa Valley is a private 501 (c)(3) non-profit corporation dedicated to promoting and developing fairness and equality of housing opportunity for all people. 
Lincoln Theater (G)
$1.4M
The Napa Valley Performing Arts Center at Lincoln Theater is a comprehensive performing arts center dedicated to the cultural and artistic wellbeing of the Napa Valley.  
Napa Valley Support Services (H)
$3.9M
To provide person-centered opportunities through integrated employment, education, self-discovery and community involvement for individuals with disabilities.
Puertas Abiertas (I)
$340K
Puertas Abiertas (Open Doors) Community Resource Center works hand in hand with Latinos to inspire and achieve healthy living, self-sufficiency, and opportunities for leadership and community engagement.

6. Strategic Financial Management

7. Strategic Financial Management
What does excellence in financial management look like?
Organizations engage in effective financial planning to prioritize the use of resources
Leaders closely monitor results to understand how the organization is doing in relation to plans and to adjust accordingly
Effective financial operations ensure that plans are being executed properly and that decisions are based on reliable information
Governance sees that all of these elements are being carried out properly and in furtherance of the organization’s mission

8. What do you hope to get out of this initiative?
Question for the Group
What do you hope to get out of this initiative?

9. Application & Selection Financial Management Workshops (4)
9/25/2012
Initiative Overview
Timeline
Application & Selection
Financial Analysis
Financial Management Workshops (4)
Keep (only the first session)
Coaching Sessions
July
2016
Aug
2016
Sep
2016
Oct
2016
Nov
2016
Dec
2016
Jan
2017

10. Initiative Overview Workshop Topics
10/4/2012
Initiative Overview
Workshop Topics
Workshop 1: Telling Your Financial Story (September 29th)
Workshop 2: Financial Planning (October 25th)
Workshop 3: Financial Monitoring (December 5th)
Workshop 4: Operational Excellence (January 12th)
Keep this slide in all sessions

11. Goals of the Initiative
9/25/2012
Goals of the Initiative
As a result of participation, organizations can expect:
Enhanced ability to communicate your organization’s financial story to staff, board, funders, and other key stakeholders
Increased ability to use historical financial information to inform the organization’s future plans and forecasts in an inclusive, team-based process
More effective communication and financial decision-making among members of the leadership team
A foundation for building an organization-wide culture of operational excellence
Identification of areas with opportunities for improvement and action steps on how to move forward
Keep in all sessions with the particular day’s topic(s) highlighted somehow
Do we need to give them time to think about the action plan before they go home?
Theory of Change:
If nonprofit organizations working to improve the quality of life for its residents [think of different wording] are strengthened financially, then those nonprofits will be better positioned to focus on the right mix of strategies that efficiently and effectively deliver on the mission of the organization.

12. Financial Management Training Initiative
Theory of Change
If nonprofit organizations are strengthened financially, then those nonprofits will be better positioned to focus on the right mix of strategies that efficiently and effectively deliver on the mission of the organization

13. Agenda for the Day Introductions & Initiative Overview
9/25/2012
Agenda for the Day
Introductions & Initiative Overview
Understanding Audited Financial Statements
The IRS Form 990

14. Understanding Audited financial statements

15. Annual Financial Audit
9/25/2012
Annual Financial Audit
Annual Financial Audit: Definition
A series of procedures followed by an independent professional accountant used to test, on a selective basis, transactions and internal controls in effect, all with a view to forming an opinion on the presentation of the organization’s financial statements
Remove audit requirements by state: notate on the run of show handout
Connecticut Audit Requirements
Audits are required for charitable organizations with gross annual revenue of $500,000 or more
No threshold or requirements for a Review or Compilation

16. Introduction to Financial Statements
[Course Title]
Introduction to Financial Statements
Statements in the audit
Statement of Financial Position (Balance Sheet)
Statement of Activities (Income Statement)
Statement of Functional Expenses (Required for Voluntary Health & Human Service Organizations)
Statement of Cash Flows
Opinion Letter
Management Letter
Notes

19. Management Letter Management Letter Issued by the auditor
Identifies areas of operations or procedures that the organization may want to improve or redesign
Reports any "material weaknesses" and significant deficiencies
May include an organization’s corrective action plan
On a quarterly basis, the Finance and Audit Committee should check in on the progress toward implementing this plan

20. 9/25/2012

21. 9/25/2012
Reflection
Questions 1 & 2
Keep this format for reflections

22. Key Questions Operating Results Net Assets Cash on Hand
What are the organization’s trends in operating results?
Surpluses or deficits
Mix of revenue sources
How is the organization investing its resources?
Net Assets
How liquid are the organization’s reserves?
What is the composition of net assets?
Cash on Hand
What is the organization’s cash position?

23. How a Nonprofit Organization’s Financial Data Tells a Story
Audited Financial Statements: How the Numbers Flow
Statement of Activities
Statement of Financial Position
(Balance Sheet) 1 2
2016
2015
Unrest
Temp
Income
315
100 35 30
Released from Restriction 70
(70)
Total Revenue
385
105
(40)
Expenses
245
215
Change in Net Assets
140
(110)
Beginning Net Assets 15 5
125 45
Ending Net Assets
155
2016
2015
Assets
200 30
Liabilities 10
Unrestricted Net Assets
155 15
Restricted Net Assets 35 5 4
Statement of Cash Flows
2016
2015
Cash Flows from:
Operations
230
205
Investing
(30) 15
Financing
(200)
Change in Cash
170 20
Beginning Cash 30 10
Ending Cash
200
Statement of Functional Expenses
2016
Program
M&G
Fundraising
Total
Personnel 90 30 20
140
OTPS 70 15
105
160 50 35
245
. Add “balance sheet” under SFP here and elsewhere in the presentation 3
2015
Program
M&G
Fundraising
Total
Personnel 90 25 15
130
OTPS 40 30 85 55
215

24. Financial Trends Analysis

25. Statement of Financial Position (Balance Sheet)
9/25/2012
Statement of Financial Position (Balance Sheet)
What We Own:
Cash
Receivables
Investments
Property, Plant & Equipment, net
Assets
Liabilities
What We Owe:
Bills due
Line of Credit
Deferred Revenue
Debt (short- and long-term) = +
Net Assets
Our Available Capital
Unrestricted
Board Designated
Fixed Assets
Other
Temp. Restricted
Perm. Restricted

27. Temp. Restricted Net Assets*
9/25/2012
Capital Structure
Short-term
Liquid Capital
LUNA / Working Capital
Debt Repayment
Longer-term
Reserves
(may be board designated)
Facility Reserve
Accessibility
Growth & Innovation
Temp. Restricted Net Assets*
Donor restricted
capital
Endowment**
*To be accessed only if delivering on donor expectations
**Only earnings are accessible

28. Operating Reserves Liquid Unrestricted Net Assets (LUNA)
9/25/2012
Operating Reserves
Liquid Unrestricted Net Assets (LUNA)
The portion of unrestricted net assets that could be converted to cash relatively easily (may or may not include board designated funds, based on accessibility)
Funds available for purposes such as supplying working capital, guarding against downturns, and pursuing new opportunities
LUNA = Unrestricted Net Assets
– (Fixed Assets – Debt Related to Fixed Assets)
– Other Illiquid assets
Modify the slide the recognize that there are other types of illiquid assets; mortgages should be “debt related to fixed assets”
Benchmark: LUNA sufficient to cover 3-6 months of operating expenses is generally considered healthy, but this depends on an organization’s business model, plans, and goals.

29. Measuring Liquidity (Level of Reserves)
Liquid Unrestricted Net Assets (LUNA)
Indicator
Calculation
Months of Liquid Unrestricted Net Assets
Liquid Unrestricted Net Assets
Average Monthly Expense

30. Months of Liquid Unrestricted Net Assets
9/25/2012
Months of Liquid Unrestricted Net Assets
6.0
3.0
Cohort
Median
Benchmark

31. Strategies for Creating Reserves
How Are They Funded ?
Reserves
Annual Surplus Designation
Budgetary Line Item for Annual Replenishment
Re-designation of Special Purpose Funds
Targeted Foundation Investment

32. Measuring Liquidity (Cash)
Balance Sheet: Months of Cash on Hand
Indicator
Calculation
Total Cash and Cash Equivalents
Months of Cash on Hand
Average Monthly Expense 32

33. Months of Cash on Hand
3.0
1.0
Cohort
Median
Benchmark

34. Reflection
Questions 3 & 4

35. Composition of Net Assets
Internal Controls and Efficiencies[Course Title]
Composition of Net Assets
Composition of Net Assets
Indicator
Calculation
Unrestricted Net Assets
Composition of Net Assets
Total Net Assets
Temporarily Restricted Net Assets
Total Net Assets
Permanently Restricted Net Assets
Total Net Assets

36. Composition of Net Assets: Example
9/25/2012
Composition of Net Assets: Example

37. Age of Fixed Assets Age of Fixed assets Age of Fixed Assets Indicator
Calculation
Age of Fixed Assets
Fixed Assets – Accumulated Depreciation

38. Age of Fixed Assets: Example
9/25/2012
Age of Fixed Assets: Example
Benchmark

39. Reflection
Questions 5 & 6

40. Statement of Activities
Organizational performance for the fiscal year
Revenues by type and restriction
Expenses broken out functionally
Fiscal year’s operating results (gains/losses)
Amount released from restrictions
Balance of Temporarily Restricted Net Assets being carried forward into the next fiscal year
Revenues released from restriction

41. To Statement of Activities

42. TRNA balance going into the next fiscal year
Operating
Results
TRNA balance going into the next fiscal year
Reserve
Balance

43. Internal Controls and Efficiencies[Course Title]
Operating Results
Statement of Activities: Operating Results
Indicator
Calculation
Operating Results
Unrestricted Revenue – Total Expenses
Operating Margin
Operating Results
Operating Revenue

44. Operating Results
Cohort
Median

45. Internal Controls and Efficiencies[Course Title]
Revenue Composition
Statement of Activities: Revenue Composition
Indicator
Calculation
Revenue Composition
Contribution & Foundation Support
Total Revenue
Government Contracts
Total Revenue
Earned Income
Total Revenue

46. Revenue Composition: Example
9/25/2012
Revenue Composition: Example

47. To Stmt of Functional Expenses

48. Statement of Functional Expenses
Expense Analysis
What is the largest program?
Is the program with the largest expense a program aligned with the organization’s mission?
What is the largest expense?
Salaries and benefits are often an organization’s largest expense
Salaries and benefits commonly make up 60% or more of total expenses

49. Largest Expense 79.2% 8.6% 12.2% Largest Program
9/25/2012
Largest Expense
79.2%
8.6%
12.2%
Matches amounts on Statement of Activities
Largest Program

50. Functional Expenses Functional Expense Definitions Classification
Description
Examples
Program, separated by major programs
The direct provision of goods or services related to the organization’s mission and purpose
Program supplies, salaries of program staff
Support Services: Management & General
Activities such as oversight, business and financial management
Audit costs, salaries of Finance and HR staff
Support Services: Fundraising
Incurred in inducing donors to contribute
Costs to produce a donor event, salaries of fundraising staff

51. Investment of Resources
9/25/2012
Investment of Resources
Investment of Resources
Expense ratios: The percentage of funds spent by the organization in each functional area
Benchmark: Benchmark: Benchmark:
65%-70% %-25% %-15%
Program Expense
Total Expense
Mgmt. & General Expense
Total Expense
Fundraising Expense
Total Expense
BBB standard 8 says charities must “spend at least 65% of its total expenses on program activities”
It does not give specific recommendations regarding M&G and Fundraising percentages, other than that Fundraising must be less than 35%.
Source BBB Wise Giving Alliance Charity Accreditation Standards:

52. Investment of Resources
Internal Controls and Efficiencies[Course Title]
Investment of Resources
Statement of Functional Expenses: Resource Allocations
Indicator
Calculation
Program Expense
Functional Expense Composition
Total Expenses
General & Administrative Expense
Total Expenses
Fundraising Expense
Total Expenses

53. 9/25/2012
Functional Expenses

54. Reflection
Questions 7, 8, and 9

55. Statement of Cash Flows
Understanding the Statement of Cash Flows
Looks at where cash was obtained and spent
Reports on the following activities:
Operations
Investing
Financing
Must disclose any non-cash activity such as acquisitions of equipment on finance

56. To Stmt of Cash Flows

57. Matches cash amount on
Statement of Financial Position

58. Notes to the Financial Statements
9/25/2012
Notes to the Financial Statements
Significant Disclosures
Description of the organization
Basis of accounting (cash, accrual and modified accrual)
Fixed assets
Debt
Temporarily and permanently restricted net assets
Related party transactions
Subsequent events
Commitment and contingencies

59. 9/25/2012

60. Financial Health Analysis Tool
9/25/2012
Financial Health Analysis Tool
Open question as to which Excel tool they get? Should we move this back to the resources section?

61. Financial Health Analysis Tool

62. Financial Health Analysis Tool
 in the “Monitoring” section
Online How-To Tutorial
Excel Tool for Audits

63. Tool: Telling Your Financial Story
9/25/2012
Tool: Telling Your Financial Story
Financial Health Narrative

64. 9/25/2012
IRS Form 990

65. IRS Form 990
What is it?
Information return for organizations exempt from income tax
Provides the IRS and state charity agencies with information to assist them in enforcing the laws governing nonprofits
The most publicly available document about an organization
IMPORTANT QUESTIONS TO CONSIDER WHEN REVIEWING A FORM 990
Are Board members compensated?
Are Board and committee meetings documented?
Is the Form 990 presented to the Board prior to filing?
What kinds of services are being provided on a consultancy basis?
Does the organization have a written Conflict of Interest, Whistleblower, and Document Retention / Destruction Policies?
How many months after the end of the fiscal year was the most recent IRS Form 990 filed?
Does the compensation structure appear reasonable given the sixe and complexity of grantee operations?
Is there a process for determining executive compensation?
Does the Statement of Program Services confirm your understanding of he grantee’s program activities?
Does the financial information in the Form 990 match the audited financials for the same year? 65

66. IRS Form 990 How is Data in the 990 Different from the Audit?
Form 990 does not provide detail about donor-imposed restrictions on revenue
Does not show board designated net assets
In-kind donations of services are not recognized in the 990
Sales of merchandise, special events, and rental activities are shown on the 990 net of expenses
Audits conform to Generally Accepted Accounting Principles (GAAP), which is not required of data in the 990
Source GuideStar: Retrieved from:

67. Front Page: Part I, Summary
9/25/2012
Front Page: Part I, Summary

68. Part III: Statement of Program Service Accomplishments
9/25/2012
Part III: Statement of Program Service Accomplishments

69. Governance, Management & Disclosure
Part VI, Section A: Governing Body and Management
Use of management company
Changes to organizational documents
Documentation of board and committee meetings
Presentation of 990 to board
List of officers, directors, trustee or key employees
Did the org become aware of a significant diversion of assets?
 Key Questions: How many board members? Are they reviewing the 990? Is there an unusual management structure?

70. Part VI, Section A: Governing Body and Management

71. Governance, Management & Disclosure
Part VI, Section B: Policies
Conflict of Interest
Monitoring and enforcement of conflict of interest policy
Whistle Blower Policy
Document retention and destruction
 Key Questions: Does the organization have appropriate governance policies in place to set the right “tone at the top?”

72. Part VI, Section B: Policies

73. Governance, Management & Disclosure
Part VI, Section C: Disclosure
States in which 990 is filed
How key documents are made public
 Key Questions: How wide is this organization casting its fundraising net? How committed to transparency is the organization?

74. Part VI, Section C: Disclosure

75. Governance, Management & Disclosure
Part VI, Section B: Policies
Process for determining compensation. Process should include:
A review and approval by independent persons
Comparability data
Contemporaneous substantiation of the deliberation and decision
 Key Question: Is there a deliberate, fair, comprehensive process to set compensation for leadership?

76. Part VI, Section B: Policies

77. IRS Form 990: Part VI Section C: Disclosure
States in which 990 is filed
How governing documents, conflict of interest policy and financial statements are made public

78. 9/25/2012
Reflection
Question 10

79. Coaching hours

80. Consulting Hours Schedule and Content
Each organization eligible to receive up to 6 hours of coaching
Scheduled in 1.5 hour increments following each workshop
In person at NVCF, or via phone
Goal of consulting hours:
Assess and discuss specific financial management practices at your organization in greater depth
Create a prioritized Action Plan for areas with opportunities to strengthen financial management systems
What to bring: reflection tools and financial trends analysis

81. Resources

82. Resources
The Key to Long Term Financial Health Liquid Unrestricted Net Assets (LUNA), Hilda Polanco, New York Nonprofit Press, May 2012: term-financial-health-liquid-unrestricted-net-assets-luna-
Keeping it in Reserve: Grantmaking for a Rainy Day. Hilda Polanco and John Summers, Nonprofit Quarterly, May 2016:
rainy-day/
An Executive Director’s Guide to Financial Leadership, Kate Barr and Jeanne Bell, Nonprofit Quarterly, December nancial-leadership/
Maintaining Nonprofit Operating Reserves: A Whitepaper, by the Nonprofit Operating Reserves Initiative Workgroup, December

83. Resources StrongNonprofits.org
9/25/2012
Resources
StrongNonprofits.org
In collaboration with the Wallace Foundation, FMA has created a library of tools and resources to help organizations become “fiscally fit” Four Topic Areas: Planning | Monitoring | Operations | Governance

84. Resources Online Tutorials for StrongNonprofits.org
FMA offers complimentary orientation one-hour webinars that feature an overview of the website and drill down on several of its key resources
Upcoming webinar dates:
November 29, 2016 at 11:00am PT
To register, or see upcoming webinar dates:
For a 15-minute, on-demand webinar tour
of the site:

85. Up Next in the Initiative
Session 2: Financial Planning
Date: October 25th
Time: 9am – 3pm
Topic: Financial planning, including setting financial goals, budget development and forecasting
Who Should Attend: Executive Director/CEO, Lead Finance Staff, Program Director(s), Development Director
Remember to bring: Budget package as submitted to Board for approval for this fiscal year; any formats used for organization, program, or project level budgeting

86. Program One-Stop Site

87. 9/25/2012
Questions?
What are they ready to do now? What is their elevator pitch about their financial story? What are they ready to do now that we’ve given them all this information? Should we take the first 30 min of next session to do reflections on last time? Might be a topic to bring up in coaching.
Need to think about placement of change management

88. Please complete and return the evaluation in your packet
How did we do?

89. Fiscal Management Associates, LLC
9/25/2012
Fiscal Management Associates, LLC
Established in 1999 to serve not-for-profit organizations around the country
Provides customized financial management, accounting, software, organizational development, human resources, and other consulting services
Works directly with organizations or through funder-supported management and technical assistance programs
FMA's mission is to empower not-for-profit organizations with the knowledge and skills to successfully serve their constituents and fulfill their missions
New York | Chicago | Oakland | LA
@FMA4Nonprofits
/FiscalManagementAssociates
linkedin.com/company/fiscal-management-associates-llc