1. THE FINANCIAL BASICS OF GRANT REVIEW Joe McCarthy and Tina Kasmarzik September 26, 2005

2. AGENDA FINANCIAL BASICS - FINANCIAL STATEMENTS AND DETERMINING FINANCIAL HEALTH UNDERSTANDING BUDGETS REVISING PROJECT BUDGETS WAR STORIES

3. FINANCIAL STATEMENTS AND DETERMINING FINANCIAL HEALTH CHART OF ACCOUNTS INCOME STATEMENT/ STATEMENT OF ACTIVITIES BALANCE SHEET/ STATEMENT OF FINANCIAL POSITION CASH FLOW STATEMENT AUDIT REPORT ANALYSIS

4. UNDERSTANDING BUDGETS WHAT IS A BUDGET? WHAT DO YOU WANT TO SEE IN A PROJECT BUDGET? BUDGET FORMAT HOW DO YOU ANALYZE THE BUDGET USING THE FINANCIAL STATEMENTS?

5. REVISING PROJECT BUDGETS WHEN WILL GRANTEES TRY AND REVISE THEIR BUDGETS? WHEN SHOULD YOU LET A GRANTEE REVISE THEIR BUDGET? HOW MUCH DOES IT COST TO REVISE A BUDGET?

6. WAR STORIES CONFERENCE ATTENDEE QUESTION AND ANSWER SESSION FREE CONSULTING (for whatever that is worth)

7. CONFERENCE ATTENDEES WHO IS IN THE AUDIENCE? WHAT IS THE LEVEL OF FINANCIAL EXPERTISE?

8. FINANCIAL STATEMENTS AND DETERMINING FINANCIAL HEALTH CHART OF ACCOUNTS INCOME STATEMENT/ STATEMENT OF ACTIVITIES BALANCE SHEET/ STATEMENT OF FINANCIAL POSITION CASH FLOW STATEMENT AUDIT REPORT ANALYSIS

9. ACCOUNTING EXPERIENCE WHO IN THE AUDIENCE HAS EVER PERFORMED AN ACCOUNTING ENTRY? CASH EXPENSE

10. (DEPOSIT) (WITHDRAWAL)

11. TAKE SOMETHING WITH YOU AS WE MOVE THROUGH THE PRESENTATION, IF YOU HAVE LITTLE OR NO KNOWLEDGE OF FINANCIAL MANAGEMENT, JUST RELATE THE INFORMATION TO YOUR PERSONAL FINANCES, AND YOU’LL LEARN SOMETHING.

12. FINANCIAL STATEMENTS AND DETERMINING FINANCIAL HEALTH CHART OF ACCOUNTS A LISTING OF THE ACCOUNT TITLES AND ACCOUNT NUMBERS BEING USED BY AN ORGANIZATION FOR RECORDING FINANCIAL TRANSACTIONS.

13. CHART OF ACCOUNTS 1xxxASSETS 2xxxLIABILITIES 3xxxEQUITY 4xxxREVENUE 5xxxEXPENSE

14. TYPES OF ACCOUNTING CASH / ACCRUAL CASH BASIS ACCOUNTING ACCOUNTING FOR CASH WHEN RECEIVED AND CASH DISBURSEMENTS WHEN MADE ACCRUAL ACCOUNTING ACCOUNTING THAT RECOGNIZES REVENUE WHEN EARNED AND EXPENSES WHEN THEY ARE INCURRED

15. CASH / ACCRUAL ACCOUNTING CASH BASIS – DR. OFFICE ACCRUAL – 95% OF ALL BUSINESSES EXAMPLE – ORDER $10,000 OF FURNITURE WITH 2 MONTH LEAD TIME

16. FINANCIAL STATEMENTS AND DETERMINING FINANCIAL HEALTH INCOME STATEMENT/ STATEMENT OF ACTIVITIES THE PURPOSE OF AN INCOME STATEMENT IS TO SHOW THE REVENUE AND EXPENSES OF A BUSINESS OVER A PERIOD OF TIME (MONTH OR YEAR)

17. STATEMENT OF ACTIVITIES THE DIFFERENCE BETWEEN REVENUE AND EXPENSE IS - NET INCOME (FOR PROFIT WORLD) - CHANGE IN NET ASSETS (NON-PROFIT)

18. STATEMENT OF ACTIVITIES REVENUE PROGRAM FEES SERVICE FEES GRANTS INTEREST EARNINGS EXPENSE SALARY BENEFITS RENT SUPPLIES EACH ACCOUNTING PERIOD THESE ACCOUNTS ARE CLOSED (ZEROED OUT) AND BALANCES REVERT TO THE EQUITY SECTION OF THE BALANCE SHEET (AS EITHER PROFIT OR LOSS)

19. STATEMENT OF ACTIVITIES IN-KIND REVENUE AND EXPENSE (GAAP ACKNOWLEDGES IN-KIND) WAR STORY – ADP GROCERY STORE WITH $1 MILLION BUDGET AND BASIC SUPPORT APPLICANT WITH $200,000 BUDGET

20. FINANCIAL STATEMENTS AND DETERMINING FINANCIAL HEALTH BALANCE SHEET/STATEMENT OF FINANCIAL POSITION PURPOSE OF A BALANCE SHEET IS TO SHOW THE FINANCIAL POSITION OF A BUSINESS ON A PARTICULAR DATE (SEPTEMBER 30, 2005)

21. BALANCE SHEET A BALANCE SHEET CONSISTS OF A LISTING OF THE ASSETS AND LIABILITIES OF A BUSINESS AND THE EQUITY (ALSO REFERRED TO AS NET ASSETS)

22. BALANCE SHEET ASSETS ARE RESOURCES OWNED BY A BUSINESS CASH AND INVESTMENTS EQUIPMENT BUILDING LIABILITIES ARE DEBTS ACCOUNTS PAYABLE ACCRUED SALARY LOAN BALANCE EQUITY/NET ASSETS – RESIDUAL BALANCE IN ASSETS AFTER DEDUCTING LIABILITIES

23. FINANCIAL STATEMENTS AND DETERMINING FINANCIAL HEALTH STATEMENT OF CASH FLOW -CASH IS THE MOST USEFUL LIQUID ASSET -THE EFFICIENT USE OF CASH IS ONE OF THE MOST IMPORTANT TASKS OF MANAGEMENT

24. STATEMENT OF CASH FLOW A CASH FLOW STATEMENT IS PREPARED TO PROVIDE INFORMATION ON CASH RECEIPTS AND CASH DISBURSEMENTS THAT OCCURRED DURING AN ACCOUNTING PERIOD (MONTH OR YEAR)

25. STATEMENT OF CASH FLOW SOURCES OF CASH COLLECTIONS FROM CUSTOMERS GRANT FUNDS RCV’D LESS USES OF CASH EQUIPMENT PURCHASE

26. STATEMENT OF CASH FLOW EQUALS EITHER AN INCREASE OR DECREASE IN CASH ADD CHANGE TO CASH AT THE BEGINNING OF THE PERIOD TO EQUAL CASH AT THE END OF THE PERIOD (ENDING CASH TIES TO THE CASH ACCOUNT ON THE BALANCE SHEET)

27. FINANCIAL STATEMENTS AND DETERMINING FINANCIAL HEALTH AUDIT REPORT INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS REVIEW ACCOUNTING PROCESSES, TRANSACTIONS, RECORDS AND FINANCIAL STATEMENTS (IN MOST CASES ANNUALLY)

28. AUDIT REPORT AUDIT FIRM EXPRESSES AN OPINION (ALSO REFERRED TO AS AN AUDIT REPORT) AUDIT REPORTS FREQUENTLY INCLUDE A ‘MANAGEMENT LETTER’ THAT CONTAINS RECOMMENDATIONS

29. ANALYSIS OF FINANCIAL STATEMENTS RATIO ANALYSIS A RATIO IS A SIMPLE MATHMATECIAL EXPRESSION OF THE RELATIONSHIP OF ONE ITEM TO ANOTHER ITEM MOST RATIOS ARE APPLICABLE IN A FOR-PROFIT ENVIRONMENT BUT SOME ARE APPLICABLE IN THE NON-PROFIT WORLD ALSO

30. OPERATING EXPENSE RATIO TOTAL EXPENSE/REVENUE PROGRAM EXPENSE OR OVERHEAD EXPENSE RATIO EXPENSE /TOTAL EXPENSE (BOTH RATIOS MEASURE ABILITY TO CONTROL EXPENSES) RATIO ANALYSIS – STATEMENT OF ACTIVITIES

31. PROFITABILITY RATIO NET INCOME/REVENUE (MEASURES LEVEL OF PROFITABILITY) RATIO ANALYSIS – STATEMENT OF ACTIVITIES

32. CURRENT RATIO CURRENT ASSETS/CURRENT LIABILITIES (MEASURES SHORT-TERM ABILITY TO PAY DEBTS DEBT RATIO TOTAL LIABILITIES/TOTAL ASSETS (MEASURES BURDEN OF DEBT) DAYS CASH ON HAND TOTAL EXPENSE/360 = DAILY ‘BURN’ RATE CASH/’BURN’ RATE = DAYS OF CASH (MEASURES ABILITY TO PAY BILLS) RATIO ANALYSIS – STATEMENT OF FINANCIAL POSITION

33. ANALYSIS OF FINANCIAL STATEMENTS COMPARATIVE FINANCIAL ANALYSIS OCCURS WHEN YOU PLACE FINANCIAL STATEMENTS SIDE BY SIDE OVER A PERIOD OF TIME (USUALLY YEARS) TO ANALYZE CHANGES

34. BUDGETS

35. UNDERSTANDING BUDGETS WHAT IS A BUDGET? WHAT DO YOU WANT TO SEE IN A PROJECT BUDGET? BUDGET FORMAT HOW DO YOU ANALYZE THE BUDGET USING THE FINANCIAL STATEMENTS?

36. UNDERSTANDING BUDGETS WHAT IS A BUDGET? A BUDGET IS A FINANCIAL PLAN LISTING ALL REVENUES AND EXPENSES FOR A PERIOD OF TIME FOR AN ORGANIZATION OR FOR A SPECIFIC PROJECT (YES, REVENUES )

37. UNDERSTANDING BUDGETS IF YOU DON’T RECOGNIZE NEW REVENUE THAT IS GENERATED AS A DIRECT RESULT OF A GRANT AWARD, YOU ARE OVERFUNDING A PROJECT EXAMPLE: MENTAL HEALTH CONSULTING SERVICES WITH A CO-PAY WAR STORY – McC COUNSELING

38. UNDERSTANDING BUDGETS WHAT DO YOU WANT TO SEE IN A PROJECT BUDGET?

39. ANSWER REALITY

40. UNDERSTANDING BUDGETS BUDGET FORMAT (THE SIMPLER…THE BETTER)

41. MFH BUDGET FORMAT MFH STARTED OFF REQUESTING TOO MUCH DETAIL - LISTING FRINGE BENEFITS (FICA, MEDICAL,PENSION, ETC.) - LISTING OVERHEAD EXPENSES (PHONE, RENT, ETC.) - APPLICATIONS GOT TOO COMPLEX AND CONTAINED TOO MANY ERRORS

42. HOW MANY APPLICANT BUDGETS FAILED THE FIRST TIME THROUGH THE INTERNAL REVIEW PROCESS? MFH BUDGET FORMAT

43. 95%

44. MFH BUDGET FORMAT HAS BEEN GREATLY SIMPLIFIED TO REDUCE RE-WORK AND ANALYSIS - ESTABLISHED MAXIMUM FRINGE RATE BY SALARY - ESTABLISHED OVERHEAD RATE (15% OF SALARY) WAR STORY - UNIVERSITIES MFH BUDGET FORMAT

45. ANALYZING BUDGETS HOW DO YOU ANALYZE THE BUDGET USING THE FINANCIAL STATEMENTS?

46. ANALYZING BUDGETS YOU’RE ALL FINANCIAL MANAGERS NOW, YOU SHOULD KNOW HOW TO DO THIS (RATIO ANALYSIS, COMPARATIVE ANALYSIS)

47. ANALYZING BUDGETS ANALYZE BUDGETS USING COMMON SENSE - ANNUAL SALARIES - FRINGE RATES - COST FOR EQUIPMENT - TOTAL COST ON A PER PERSON SERVED BASIS

48. REVISING PROJECT BUDGETS WHEN WILL GRANTEES TRY AND REVISE THEIR PROJECT BUDGETS? WHEN SHOULD YOU LET A GRANTEE REVISE THEIR PROJECT BUDGET? HOW MUCH DOES IT COST TO REVISE A BUDGET?

49. REVISING PROJECT BUDGETS WHEN WILL GRANTEES TRY AND REVISE THEIR PROJECT BUDGETS? ANSWER: JUST ABOUT ANY TIME THAT THEY THINK THEY CAN GET AWAY WITH IT

50. REVISING PROJECT BUDGETS WHEN SHOULD YOU LET A GRANTEE REVISE THEIR PROJECT BUDGET? ANSWER: AS SELDOM AS POSSIBLE MFH HAS A 25% BUDGET REVISION RATE – TOO HIGH

51. MFH HAS BEEN FORCED TO ESTABLISH A POLICY TO NOT ACCEPT BUDGET REVISIONS WITHIN 1 ST YEAR OF A PROJECT AND ONLY ONCE A PROJECT YEAR THEREAFTER REVISING PROJECT BUDGETS

52. HOW MUCH DOES IT COST TO REVISE A BUDGET? ANSWER: TOO MUCH FOUNDATION STAFF TIME - PROGRAM OFFICER TIME - GRANTS MANAGER TIME - BUDGET REVISION - CONTRACT AMENDMENT

53. REVISING PROJECT BUDGETS BUDGET REVISIONS MUST BE TIGHTLY CONTROLLED MFH ENFORCES BUDGETS THROUGH GRANT AWARD AGREEMENT

54. REVISING PROJECT BUDGETS INTERIM FINANCIAL REPORTS MUST TIE OUT TO THE APPROVED BUDGET (OR NEXT CHECK HELD) FINAL REPORT MUST ALSO TIE OUT (5% WITHHOLD)

55. BUDGET ISSUES MFH HAS A LATE PAYMENT REPORT (WATCH LIST) WAR STORIES– BOOTHEEL THE CLINIC ST. CHAS DENTAL

56. CONTROL BUDGET ISSUES SET A CAP ON GRANT AWARDS AS A % OF OPERATING EXPENSE CONDUCT GRANTEE ORIENTATIONS ANALYZE FINANCIAL REPORTS – INVITE GRANTEES TO VISIT CFO IF OUT OF TOLERANCE

57. WAR STORIES NOW IS THE TIME TO SHARE YOUR WAR STORIES QUESTIONS, CONCERNS OR ISSUES RELATING TO GRANT APPLICANT FINANCIAL STATEMENTS OR PROJECT BUDGETS