1. Development vs. Finance Healthy Friction November 3 – 4, 2009 Presented By Ben Aase and Jen Foley

2. 2 Learning Objectives At the end of this session, you will be able to:  Combat the natural friction between your development and finance offices.  Understand the importance of your organization’s internal environment.  Better communicate financial information to your organization’s funders and supporters.  Try new ideas to integrate your financial and development systems to the benefit of both functions.

3. 3 Agenda  Myth: How We Sometimes See Each Other  Root Cause: Friction Between Departments  Reality: Our Respective Duties and Responsibilities  Moving Forward: What We Can Learn

4. 4 How We Sometimes See Each Other How Development Sees Finance How Finance Sees Development “Restrictive sticklers for detail who don’t appreciate how hard it is to raise money for our organization.” “Eternal optimists with no regard for the rules or appreciation for those I’m accountable to.”

5. 5 Root Cause: Key Differences DevelopmentFinance MissionProcure ResourcesAccount for Their Use MeasurementIncentive-BasedStewardship-Based StakeholdersDonorsIRS / Auditors / Public Perspective Healthy Optimism “All pledges are collectible” Healthy Skepticism “Show me the money”

6. 6 Less Balance = More Risk

7. 7 What are the Risks?  Potential for Fraud  Loss of donor confidence

8. 8 How Does Fraud Occur  Risk Factors – Opportunities – Pressures/Incentives – Rationalize Opportunities: – Reconciliation of activity does not occur between departments Annual reports Donor database – Too much access to one database or another and access to cash

9. 9 How Does Fraud Occur Pressures/Incentives: – Internal goals – annual and capital campaigns – Gambling addiction – Loss of spousal income – Medical bills – Upset with the organization Rationalization: – I deserve it – I’m helping the organization – The donor will never know – This is a one time deal, won’t happen again – I’ll repay it

10. 10 A System of Checks and Balances Five components: 1. Control Environment 2. Risk Assessment 3. Information and Communication Systems 4. Monitoring 5. Control Activities

11. 11 A System of Checks and Balances  Objectives – Effectiveness and efficiency of operations – Reliability of financial reporting – Compliance with applicable laws and regulations  Can your committees and board state that they have reasonable assurance that: – they understand the extent to which the entity’s operations objectives are being achieved – Published financial statements are being prepared reliably – Applicable laws and regulations are being complied with

12. 12 Why Does this All Matter?  Reputation of the Organization – Front page of the paper  Do what’s right – The mission of the organization  Respect the Donor’s wishes – Donor’s perception

13. 13 Best Practices for Mutual Success  Appoint independent directors with the intent of achieving an independent majority  Periodically evaluate executive compensation levels  Require independent director approval of related-party transactions  Adoption of a Code of Ethics / Annual Conflict of Interest Statements  Strengthening Gift Acceptance and Investment Policies.  Increased Financial Disclosures – Transparency  Conduct periodic reviews of internal control over financial reporting

14. 14 Best Practices for Mutual Success  Require audited financial statements  Disclose critical accounting policies and estimates  Disclose off-balance sheet and contingent liabilities  Open lines of communication

15. 15 Thank You Ben Aase Managing Consultant 612 / 397 – 3069 baase@larsonallen.com Jen Foley, CPA 612 / 376 – 4773 jfoley@larsonallen.com