Nonprofit Management Nonprofit Management Certificate CourseCertificate Course

Nonprofit Management Nonprofit Management Certificate CourseCertificate Course

Financial analysis and reportingFinancial analysis and reporting

Overall ObjectivesOverall ObjectivesOverall ObjectivesOverall Objectives

• Differences between commercial and Differences between commercial and nonprofitnonprofit

• Accounting and reporting concepts for Accounting and reporting concepts for nonprofitsnonprofits

• Unique accounting matters Unique accounting matters

• Basic reporting requirementsBasic reporting requirements

• Basic tax considerationsBasic tax considerations

Fiduciary ResponsibilityFiduciary ResponsibilityFiduciary ResponsibilityFiduciary Responsibility

• Recipients of serviceRecipients of service

• ContributorsContributors

• Revenue sources (i.e. Grantors) Revenue sources (i.e. Grantors)

Fiduciary ResponsibilityFiduciary ResponsibilityFiduciary ResponsibilityFiduciary Responsibility

Benefits to NonprofitsBenefits to NonprofitsBenefits to NonprofitsBenefits to Nonprofits

• Federal income tax exemptionFederal income tax exemption

• Other tax benefitsOther tax benefits

• Ability to attract contributionsAbility to attract contributions

• Employment and excise tax benefitsEmployment and excise tax benefits

• Preferred postal ratesPreferred postal rates

• Special annuity provisionsSpecial annuity provisions

Business Vs. NonprofitBusiness Vs. NonprofitBusiness Vs. NonprofitBusiness Vs. Nonprofit

• Profit motiveProfit motive• Cost or traditional Cost or traditional

accountingaccounting• Sales of goods and Sales of goods and

servicesservices• Financial statement Financial statement

usersusers

• Managerial Managerial responsibilityresponsibility

• Fund accountingFund accounting• Donated assetsDonated assets• Financial statement Financial statement

usersusers

Types of NonprofitsTypes of NonprofitsTypes of NonprofitsTypes of Nonprofits

• Voluntary health and welfareVoluntary health and welfare

• NongovernmentalNongovernmental

• Colleges and universitiesColleges and universities

Financial Statement UsersFinancial Statement UsersFinancial Statement UsersFinancial Statement Users

• Funding sourcesFunding sources• Regulatory agenciesRegulatory agencies• BeneficiariesBeneficiaries• Trustees/ directors Trustees/ directors

• Governmental unitsGovernmental units• CreditorsCreditors• Constituent Constituent

organizationsorganizations• EmployeesEmployees

Service Efforts and AccomplishmentsService Efforts and AccomplishmentsService Efforts and AccomplishmentsService Efforts and Accomplishments

• What is the organization’s purpose?What is the organization’s purpose?

• Who does the organization serve?Who does the organization serve?

• What services are offered?What services are offered?

• How are the services provided?How are the services provided?

• How well are the services delivered?How well are the services delivered?

Financial Statement PurposeFinancial Statement PurposeFinancial Statement PurposeFinancial Statement Purpose

• Report nature and amount of available Report nature and amount of available resourcesresources

• Identify principal programs and costsIdentify principal programs and costs

• Disclose degree of control by donors Disclose degree of control by donors over resource useover resource use

Accrual Basis ReportingAccrual Basis ReportingAccrual Basis ReportingAccrual Basis Reporting

• Goods/services purchased are recorded Goods/services purchased are recorded when title passes or services are when title passes or services are receivedreceived

• Revenues reported when earnedRevenues reported when earned

• Support recognized upon legal Support recognized upon legal enforceable right to assetsenforceable right to assets

Basic Financial StatementsBasic Financial StatementsBasic Financial StatementsBasic Financial Statements

• Statement of financial positionStatement of financial position

• Statement of activitiesStatement of activities

• Statement of cash flowsStatement of cash flows

• Notes to financial statementsNotes to financial statements

• Statement of functional expenses(vhw)Statement of functional expenses(vhw)

Philosophy of ReportingPhilosophy of ReportingPhilosophy of ReportingPhilosophy of Reporting

Where business enterprises and not-for-Where business enterprises and not-for-profits are alike, the financial statements profits are alike, the financial statements should be similar because certain should be similar because certain information is useful to resource providers information is useful to resource providers regardless of the type of entity. However, regardless of the type of entity. However, when transactions and objectives are when transactions and objectives are different, financial reporting should be different, financial reporting should be different.different.

Key DifferencesKey DifferencesKey DifferencesKey Differences

• Contributions, where resources are Contributions, where resources are received without return of value in received without return of value in exchangeexchange

• Donor-imposed restrictionsDonor-imposed restrictions

• Multiple performance indicators Multiple performance indicators necessarynecessary

Basic ResourcesBasic ResourcesBasic ResourcesBasic Resources

• Unrestricted net assetsUnrestricted net assets

• Designated net assetsDesignated net assets

• Temporarily restricted net assetsTemporarily restricted net assets

• Permanently restricted net assetsPermanently restricted net assets

Combined Financial Combined Financial StatementsStatements

Combined Financial Combined Financial StatementsStatements

• Look for elements of Look for elements of control:control:

– Solicitation Solicitation – Resource useResource use– Assigned functionsAssigned functions

Contributions - FASB No. 116Contributions - FASB No. 116Contributions - FASB No. 116Contributions - FASB No. 116

• Transfers that areTransfers that are– NonreciprocalNonreciprocal– Made or received voluntarilyMade or received voluntarily– To or from entities acting other than as To or from entities acting other than as

ownersowners– UnconditionalUnconditional

Rules for Recognizing ContributionsRules for Recognizing ContributionsRules for Recognizing ContributionsRules for Recognizing Contributions

• Revenue recognition upon the Revenue recognition upon the occurrence of the underlying eventoccurrence of the underlying event

• Donor-imposed restrictions do not Donor-imposed restrictions do not change timing of recognitionchange timing of recognition

Rules for Recognizing ContributionsRules for Recognizing ContributionsRules for Recognizing ContributionsRules for Recognizing Contributions

• Donor-imposed conditions affect the Donor-imposed conditions affect the timing of the recognitiontiming of the recognition

• Contributions are measured at fair Contributions are measured at fair value of the assets receivedvalue of the assets received

Footnotes to StatementsFootnotes to StatementsFootnotes to StatementsFootnotes to Statements

• Basis of accountingBasis of accounting

• Key definitionsKey definitions

• Use of estimatesUse of estimates

• Additional analysis of financial Additional analysis of financial statement numbersstatement numbers

Statement of Financial Statement of Financial PositionPosition

Statement of Financial Statement of Financial PositionPosition

• Total assetsTotal assets

• Total liabilitiesTotal liabilities

• Total net assetsTotal net assets

• Unrestricted net assetsUnrestricted net assets

• Temporarily restricted net assetsTemporarily restricted net assets

• Permanently restricted net assetsPermanently restricted net assets

Donor Imposed RestrictionsDonor Imposed RestrictionsDonor Imposed RestrictionsDonor Imposed Restrictions

• Support of particular programsSupport of particular programs

• Investment for a specified termInvestment for a specified term

• Use in a specified future periodUse in a specified future period

• Acquisition of long-lived assetsAcquisition of long-lived assets

Format of StatementFormat of StatementFormat of StatementFormat of Statement

Statement of Activities - PurposeStatement of Activities - PurposeStatement of Activities - PurposeStatement of Activities - Purpose

• Effects of transactions changing net Effects of transactions changing net assetsassets

• Relationship of those changes to each Relationship of those changes to each otherother

• How resources are used in providing How resources are used in providing various programs and servicesvarious programs and services

Statement of Activities - PurposeStatement of Activities - PurposeStatement of Activities - PurposeStatement of Activities - Purpose

• Evaluate performanceEvaluate performance

• Assess service efforts and ability to Assess service efforts and ability to provide serviceprovide service

• Assess how managers have discharged Assess how managers have discharged their stewardshiptheir stewardship

Statement of ActivitiesStatement of ActivitiesStatement of ActivitiesStatement of Activities

• Change in net assetsChange in net assets

• Change in permanently restricted net Change in permanently restricted net assetsassets

• Change in temporarily restricted net Change in temporarily restricted net assetsassets

• Change in unrestricted net assetsChange in unrestricted net assets

Statement of ActivitiesStatement of ActivitiesStatement of ActivitiesStatement of Activities

• Revenues - inflows of resources that Revenues - inflows of resources that result from an organization’s ongoing result from an organization’s ongoing major and central activitiesmajor and central activities

• GainsGains

• Contributed servicesContributed services

Contributed ServicesContributed ServicesContributed ServicesContributed Services

• Must create or enhance nonfinancial Must create or enhance nonfinancial assetsassets

• Require specialized skills, are provided Require specialized skills, are provided by individuals possessing those skills by individuals possessing those skills and would typically need to be and would typically need to be purchased if not donatedpurchased if not donated

ExpensesExpensesExpensesExpenses

• Always reported as decreases in unrestricted Always reported as decreases in unrestricted net assetsnet assets

• Functional classificationFunctional classification– ProgramsPrograms– Fund raisingFund raising– Management and generalManagement and general

• Natural classificationNatural classification– Salaries, utilities, etc.Salaries, utilities, etc.

Program ServicesProgram ServicesProgram ServicesProgram Services

Activities that result in goods and Activities that result in goods and services being distributed to services being distributed to beneficiaries, customers or members beneficiaries, customers or members that fulfill the purposes or mission for that fulfill the purposes or mission for which the organization exists.which the organization exists.

Management and GeneralManagement and GeneralManagement and GeneralManagement and General

• Business managementBusiness management

• General recordkeepingGeneral recordkeeping

• BudgetingBudgeting

• Financing and related administrative Financing and related administrative activitiesactivities

Fund RaisingFund RaisingFund RaisingFund Raising

• Publicizing and conducting fund-Publicizing and conducting fund-raising campaignsraising campaigns

• Maintaining donor mailing listsMaintaining donor mailing lists

• Conducting special fund-raising eventsConducting special fund-raising events

Functional ReportingFunctional ReportingFunctional ReportingFunctional Reporting

PPrrooggrraamm MM&&GG FFuunnddRRaaiissiinngg

SSaallaarriieessBBeenneeffiittssTTrraavveellSSuupppplliieess

xxxxxx xxxxxx xxxxxx

Cost AllocationCost AllocationCost AllocationCost Allocation

• IndirectIndirect

• DirectDirect

• AllocationAllocation

• Cost studyCost study

• By transactionBy transaction

• Time studyTime study

• Space utilizationSpace utilization

Reporting OptionsReporting OptionsReporting OptionsReporting Options

• Investment revenues and expensesInvestment revenues and expenses

• Contributions whose restrictions are Contributions whose restrictions are met in same periodmet in same period

• Contributions of long-lived assetsContributions of long-lived assets

Cash Flow Statement-purposeCash Flow Statement-purposeCash Flow Statement-purposeCash Flow Statement-purpose

• Ability to generate positive future cash Ability to generate positive future cash flowsflows

• Ability to meet obligations Ability to meet obligations • Reasons for differences between changes Reasons for differences between changes

in net assets in net assets • Effects of cash and noncash investing and Effects of cash and noncash investing and

financing activitiesfinancing activities