Posts tagged with "Nonprofit"

Assess Your Organization’s Vulnerability to Fraud

It’s a people problem, so combat it with governance.   

Purchasing schemes, cash skimming, and financial statement fraud are three very different types of fraud that nonprofits must prevent, detect, and insure against. Still, behind each of them – and every variety of deliberate, deceptive act against nonprofits – there’s a fundamental and shared dynamic at play.

Fraud isn’t just an operational or financial risk. It’s inherently a human risk, meaning it often crosscuts numerous functions and departments within a nonprofit organization. Not only that, but the people behind these acts are complex. They’re pressured by varying circumstances, motivated by different opportunities, and self-assured by their own unique rationales. Making matters more complicated, fraud isn’t always a solo act. In fact, a report by the Association of Certified Fraud Examiners (ACFE) found that 46% of fraud cases involve multiple perpetrators. When fraud occurs, the web of nefarious activity often extends to surprising depths within an organization.

To combat this threat, nonprofits face a critical need to address fraud, starting with more guidance and engagement from leaders and boards to create an anti-fraud environment and oversee a fraud risk management function. One of the most important deterrents of fraud is knowing that the organization’s leaders have no tolerance for it, will act accordingly to detect it, and will take appropriate action if they find it. Begin by focusing on these four steps:

1. Find a Catalyst

You need a high-ranking sponsor to get fraud risk management off the ground. This leader’s first order of business should be deciding whether the organization’s fraud risk management will be integrated into the existing risk management function (which typically focuses on strategic, operational, reporting, and compliance risks) – or whether it will be separate. Either way, the goal is the same: Embed a risk management element into the daily activities of all your personnel.

2. Create Responsibilities & Structures

With your management process in place, establish a governance structure for it, including designated oversight responsibilities at the board level, such as an audit committee. Keep in mind, this framework and the tools your organization uses should be scaled to fit both your size and your available resources. It’s impossible to completely “fraud-proof” any organization, so understand the weak points in your infrastructure and organization, and then work backwards to execute your anti-fraud processes. Also, while fraud prevention is ideal, many nonprofits have to weigh the costs and practicality of preventive processes versus detective measures.

3. Engage & Educate

Especially when faced with resource constraints, nonprofits should engage all their staff in an ongoing system of fraud deterrence. Above all, provide your employees with workshops and trainings in which you educate them on why people perpetrate fraud, which red f lags to watch for, and what resources – such as whistleblower policies, reporting systems, and hotlines – are available to them. Awareness throughout your organization can be the single most effective fraud deterrent and vehicle for detection, but it has to start from the top.

4. Craft Dynamic Risk Assessments

People are dynamic, so your risk assessments must keep pace. With roles and responsibilities identified, use your team to pinpoint which inherent risks exist. Then prioritize these risky situations based on their impact, likelihood, and the speed at which they’re apt to occur. Finally, use those priority rankings to map the best preventive and detective controls.

Source: “Assess Your Organization’s Vulnerability to Fraud”. Nonprofit World. October/November/December 2017. Vol. 35, No. 4: 20 – 21. Print.

Common Audit Pitfalls and Misperceptions

Common Audit Pitfalls and Misperceptions – FTM Nonprofit Forum for September 26, 2018

Nonprofit Forum Agenda for September 26, 2018

11:30 to 12:30-Financial Management Topic
Common Audit Pitfalls and Misperceptions

Click here to register

While not required by law, one reason a nonprofit might conduct an audit is to demonstrate the organization’s commitment to financial transparency and accountability.

And while a nonprofit can spend considerable resources for its annual audit, it is important that it consider the following to ensure the audit is a success:

  • No delays: An audit needs to avoid any major delays.
  • Minimal accrual and year-end adjustments: The nonprofit needs to ensure that all accrual and year-end adjustments are completed prior to the start of the audit.
  • Minor board and management comments: It is a good idea to have an exit interview after the fieldwork to review the audit’s results.
  • No material weakness or significant deficiency: This is a deficiency in internal controls that could negatively impact financial integrity.
  • Nonprofit should prepare audited financial statements and related disclosures: The organization should have the ability and accounting systems to prepare the audited financial statements and related footnotes and disclosures.
  • Fraud detection is not purpose of audit: While nonprofit leaders may believe the annual audit will uncover fraud, it is very unlikely this will occur.
  • Auditor does not guarantee financial statement accuracy: While auditor does issue an opinion on the nonprofit’s financial statements, the auditor does not certify or guarantee its accuracy.
  • If your nonprofit has one of these audit pitfalls or misperceptions, you should take action to bring expertise and capacity to your organization to remedy it.

This webinar will help Executive Directors, Finance Directors, and finance staff to develop and use a financial policies and procedures manual. Savvy nonprofit leaders know that effective financial audits can be the difference between good and great performance.

Those attending the forum will receive handouts.

Click here to register

Why Your Nonprofit Should Consider Using Nonprofit Accounting Software?

Why Your Nonprofit Should Consider Using Nonprofit Accounting Software?

Why Your Nonprofit Should Consider Using Nonprofit Accounting Software? – Your organization like every other nonprofit is feeling the pressure to deliver more transparency. The demand for more timely information is coming from a multitude of interested parties: board members, major donors, potential funders, and watch dog organizations.

Join us online Wednesday, August 29 11:30 – 1:00e
Click here to register

Why Your Nonprofit Should Consider Using Nonprofit Accounting Software?

The goal of transparency can’t be easily accomplished without sound nonprofit accounting software-financial reporting is the foundation upon which transparency is achieved.

As the number of nonprofits have proliferated, accounting software is more tailored and can help manage these complexities. But taking the time to select the right software for your nonprofit is critical.

Before your purchase, start with a software evaluation and assessment to see if you’re a good candidate for nonprofit accounting software. The software evaluation and assessment will review your current system to determine its level or utilization and functionality. It is probably a good idea to perform a software evaluation any time there is a major change within the organization either positive or negative.

We will review at least seven reasons Nonprofit’s should consider Nonprofit Accounting Software.

This webinar will help Executive Directors, Finance Directors, and finance staff to use and select the proper software for their organization.

Overlooked Benefits of Outsourcing Nonprofit Accounting

Overlooked Benefits of Outsourcing Nonprofit Accounting

Overlooked Benefits of Outsourcing Nonprofit Accounting

Has your organization ever looked at outsourcing all or a portion of its accounting? If not, it is because you’re not sure how the organization would benefit from this decision?

Since it is not a common practice for nonprofits to outsource its accounting, we will discuss the process and discuss the overlooked benefits of outsourcing your Nonprofit Accounting.

Join us online Wednesday, July 25 11:30 – 1:00e
Click here to register

In the nonprofit community, outsourcing typically means long-term delegation of key operation to outside experts. The accompanying expectation is improvement of the quality, strengthening effectiveness, and lowering or controlling costs.

A key difference in the nonprofit sector is not only controlling costs, but becoming a more effective organization.

Outsourcing accounting provides nonprofit organizations with a team of experts who have multiple client experiences which benefits its clients and the nonprofit organization’s it serves.

We will review six overlooked, and sometimes unknown, benefits of outsourcing nonprofit accounting.

We will answer this and more. We will review and provide you with a candid conversation of the benefits and disadvantages of outsourcing nonprofit accounting.

Immediately following the presentation on benefits of outsourcing nonprofit accounting, we will host a discussion on how to have the best possible accounting system.

FASB proposes clarifications to accounting for grants and contributions

FASB proposes clarifications to accounting for grants and contributions

At a glance

A new FASB proposal will become effective in 2019 and will require nonprofits to account for grants from the government differently and may affect the timing of revenue and expense recognition for both recipients and funders of condition grants and gifts.

What happened?
On August 3, the FASB proposed rules that would require some grants received by not-for-profit entities (NFPs) to be accounted for under the contribution accounting model instead of the new revenue recognition standard. The proposed changes could also alter the timing of recognition of revenues or expenses for conditional grants and gifts under the contribution accounting model. While accounting for contributions primarily affects NFP entities, the proposed amendments would apply to all entities, including business entities that make contributions or grants.

Five-step approach for revenue recognition

The core principle of the new standard is that revenue recognition should “depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services” (ASC 606-10-05-3). To accomplish this objective, reporting entities are to apply a five-step approach:

  • Identify the contract with the customer.
  • Identify the performance obligations in the contract.
  • Determine the transaction price.
  • Allocate the transaction price to the performance obligations in the contract.
  • Recognize revenue when (or as) the entity satisfies a performance obligation.

Key provisions
The differentiator between a contribution and an exchange transaction is whether there has been an “exchange of commensurate value.” The exposure draft proposes enhanced guidance for determining when such an exchange has taken place between the parties to a grant or gift arrangement. In an exchange transaction accounted for under the new revenue recognition standard, reciprocal benefits flow directly between the parties to the arrangement. If benefits ultimately flow to the general public, rather than to the funder, the proposal would require that the arrangement be accounted for as a contribution, rather than as an exchange transaction. This might occur when, for example, a government agency uses a grant arrangement to outsource its own obligation to provide certain benefits to the public. Because NFPs and business entities generally account for federal grant awards as exchange transactions today, the proposal would be a significant change for NFPs. However, business entities would not be affected, because transfers of resources from governments to business entities are outside the scope of the contribution accounting guidance.

The proposal would shift revenue recognition for many grants received by NFPs from an exchange model to the model for “conditional contributions.” Consequently, the FASB also proposes changes that would clarify the accounting for conditional contributions.
Those changes would also affect donors and donees in gift transactions. When a gift or grant is conditional, neither the giver nor the receiver can recognize expense or revenue until the condition is satisfied. The proposal would redefine a “conditional” gift or grant as one that specifies a barrier that must be overcome to be entitled to the promised funds, along with a requirement that the funds be returned (or the promisor released from its obligation) if the barrier is not overcome. Unless a gift or grant includes these more restrictive provisions, gifts or grants deemed to be “conditional” today would no longer qualify. As a result, recipients would recognize contribution income, and grantors
or donors would recognize contribution expense, earlier than they do today.

Effective date
The proposed amendments would have the same effective date as the new revenue standard. For public business entities and conduit bond obligors with publicly-traded debt, the proposed rules would be effective for annual reporting periods beginning after December 15, 2017. Other entities would have an additional year.

Why is this important?
The proposed ASU would provide a more robust framework to determine when a transaction should be accounted for under the contribution accounting model or as an exchange transaction accounted for under other guidance (for example, ASC 606). In doing so, it seeks to harmonize the revenue recognition model used by NFPs for government grants, foundation grants, and charitable contributions. However, NFPs and
business entities could end up applying different revenue recognition models to similar grant transactions. The proposal also underscores the FASB’s intent that accounting for contributions should be consistent from the perspective of both the maker and the recipient of a contribution
or grant. Thus, the proposed changes for determining whether a contribution is conditional would apply equally to both resource providers and recipients.

Common audit pitfalls and misperceptions

By Jim Simpson, CPA and director, Financial Technologies & Management

While not required by Indiana law, one reason a nonprofit might conduct an audit is to demonstrate the organization’s commitment to financial transparency and accountability.

And while a nonprofit can spend considerable resources for its annual audit, it is important that it consider the following to ensure the audit is a success.

No delays: An audit needs to avoid any major delays. It is important that an auditor schedule significant time to complete most of the audit during fieldwork. The nonprofit needs to prepare for the auditor and have all the major items ready prior to the start of the audit. An auditor and the nonprofit should work together to complete any open-audit items prior to the audit.

Minimal accrual and year-end adjustments: The nonprofit needs to ensure that all accrual and year-end adjustments are completed prior to the start of the audit and to verify that last year’s audit adjustments have been recorded and reconciled with the prior audit. It is also important to understand and record any adjustment so that auditor is not performing the nonprofit’s responsibilities.

Minor board and management comments: It is a good idea to have an exit interview after the fieldwork to review the audit’s results and any remaining open issues that need to resolution to complete the audit. An auditor should provide written and verbal feedback of results.

Here are items that might be addressed in a written communication:

 significant new accounting policies

 significant or unusual transactions

 significant accounting estimates

 audit adjustments

 management disagreements

 significant issues or difficulties

No material weakness or significant deficiency: This is a deficiency in internal controls that could negatively impact financial integrity. A significant deficiency is also a falling of internal controls that is less severe than a material weakness, yet important to mention to those charged with the organization’s governance. An example would be investment reconciliation that was not performed on a consistent basis and led to investments not being properly reported.

Nonprofit should prepare audited financial statements and related disclosures: The organization should have the ability and accounting systems to prepare the audited financial statements and related footnotes and disclosures. The auditor’s focus should be to test financial statements prepared by management and provide an independent, expert opinion that the nonprofit’s financial statements are properly presented.

Fraud detection is not purpose of audit: While nonprofit leaders may believe the annual audit will uncover fraud, it is very unlikely this will occur. It may be surprising, but the external audit is only likely to detect fraud about three percent of the time. The top fraud detection methods are the responsibility of the nonprofit and not the auditor. It is important that the organization be diligent, and not over rely on the audit to deter and detect fraud.

Auditor does not guarantee financial statement accuracy: While auditor does issue an opinion on the nonprofit’s financial statements, the auditor does not certify or guarantee its accuracy. The auditor just represents that the financial statements fairly present the financial statements of the nonprofit.

If your nonprofit has one of these audit pitfalls or misperceptions, you should take action to bring expertise and capacity to your organization to remedy it. Eliminating these pitfalls and concerns later can require significant resources and can have an adverse impact on the reputation of your organization. It is much better to focus on putting corrective and proactive measures in place, rather than the time-consuming process of responding to an auditor’s findings. Accounting Solutions for your Nonprofit

Jim Simpson, CPA and director of Financial Technologies & Management, is a nonprofit financial leader and trainer, CFO, controller, forensic consultant and software advisor, including Abila MIP Fund Accounting since 1999. He has served CFO, controller and software advisor for over 25 years to over 350 nonprofit organizations.

Contact Financial Technologies & Management to see how we can help your nonprofit with accounting solutions. You can schedule an appointment directly from the website at WWW.FTMLLC.COM, email info@ftmllc.com or phone at 317-819-0780.

Developing an effective dashboard and key performance indicators

By Jim Simpson, CPA and director, Financial Technologies & Management

Nonprofits are complex organizations that are built around mission and outcomes, which must be supported by the right revenue and expense models.

Dashboards are one way to simply communicate and give an overview of the organization by using a graphical summary of important information. It is an easy way for decision-makers to see where and whether the organization is on the planned financial path, and additionally can be used with funders and stakeholders to transparently show progress towards desired goals.

But a dashboard without metrics is useless to the organization, it is important to develop the associated metrics and constantly review to ensure you are actually measuring success for the organization.

Effective dashboards

Charts and graphs are not considered a dashboard unless that have the following characteristics:

 Align success definitions across organization

 Encourage communication regarding progress towards goals

 Identify successes and challenges

 Actual data and evidence to make decisions

 Strengthen relationships between different activities

A properly designed dashboard allows a nonprofit to monitor its effectiveness as evidenced by the financial health along with the impact of the programs and services provided. Board and staff should develop strategy and goals to create dashboards with focused conversation and collaboration.

When you select the dashboard elements, you should understand the data you will track and how that data will influence decision making. Questions to ask include: Are the metrics for the organization or particular function? Is the tool for the board, staff, or funders?

Successful dashboards achieve the following:

 Successfully communicate strategic-level results

 Present data in a user-friendly visual format

 Create snapshot of current status and trends over time

 Show performance against defined targets

 Highlight out-of-the-ordinary results

 Create a manageable set of key performance indicators

Consider each revenue and expense stream and the factors that influence the reliability and predictability and what contributes to the increasing or decreasing of these streams.

Performance indicators (KPIs)

it is important to determine the program-delivery mechanism that influences results. Different types of nonprofits have different organizational models with different drivers for success. It is important to select Key Performance Indicators (KPI’s) that focus the organization on data that will support decision-making. Consider whether you need a dashboard that reflects trends over time or performance against goals.

In order to get started, focus on the most important part of the process, which is to define the key drivers and metrics while focusing on the most pressing issues to start. This will help you start the process of developing your organization’s key performance indicators and the related dashboards to move your organization towards data driven decision-making.

When creating a dashboard and KPI’s, you should do the following:

 Start with the big picture

 Identify the audience and how to engage it

 Define business model drivers and key levers inherent in program delivery

 Choose KPIs in a thoughtful, team-based process that is inclusive

 Re-evaluating KPIs is an ongoing process

 Establish a culture of data driven decision making

Successful Key Performance Indicators (KPIs) achieve the following:

 Represent business model drivers

 Reflect progress towards intended outcomes

 Guides priorities and decisions

 Limited number of KPIs that can be realistically monitored

 Should be periodically reassessed

When putting the dashboard reporting into action make sure you consider the following:

 Where does data come from?

 Who is responsible to collect data?

 How will dashboard be updated and how often?

 What platform or tools should we use to update dashboard?

Jim Simpson, CPA and director of Financial Technologies & Management, is a nonprofit financial leader and trainer, CFO, controller, forensic consultant and software advisor, including Abila MIP Fund Accounting since 1999. He has served CFO, controller and software advisor for over 25 years to over 350 nonprofit organizations.

Contact Financial Technologies & Management to see how we can help your nonprofit with accounting solutions. You can schedule an appointment directly from the website at WWW.FTMLLC.COM, email info@ftmllc.com or phone at 317-819-0780.

Building a Superior Budget

By Jim Simpson, CPA and director, Financial Technologies & Management

A strong budget is an essential element for any nonprofit organization to achieve financial leadership. Superior budgets, though, have written plans about the core activities to include strategic, organizational, and program goals and how they will be financed.

Most financial leaders focus too much time on budget variance analysis and not enough time to anticipating or planning for the future. By anticipating or planning, organizations can focus on what’s upcoming regardless of its budget cycle or fiscal year end. A budget can be complemented with rolling forecasts to better anticipate upcoming financial results.

Budgets also need to include cash flow projections, which maybe outside of the finance departments capacity or capabilities. Financial leaders must have a direct role in developing useful cash flow projections and assumptions with frequent, detailed analysis.

Any cash flow shortage needs to be further evaluated to determine if it is just a timing difference or an actual cash deficit. Shortfalls created by deficits need to be solved by budget adjustments or strategic choices to absorb a shortfall. An organization can determine timing or actual deficits by reviewing the budget to see if it had planned for or not.

Financial sustainability can only be achieved with a well-prepared and continuously monitored budget. Conversely, a poorly developed budget can diminish mission focused activities opportunities and threaten long-term success.

Typically, the budgeting process should begin three months before the end of the fiscal year to ensure the budget is approved before the start of the fiscal year. It is important that each of the following budget process practices is used to develop the budget.

 Under current financial status, including review income and expenses, compared to existing budget, forecast remainder of year, then analyze to understand variances.

 Establish a timeline that allows each step to have time for review, discussion and revisions.

 Set up goals to determine organizational and program goals and desired financial outcomes.

 Agree on budget approach to include budget team’s roles and responsibilities along with authority.

 Draft expense budget to attain strategic, organizational and program goals. It is important to break expenses into variable expenses, fixed expenses, incremental expenses and indirect expenses.

 Develop draft income budget to identify expected income from funding sources, including any new activities.

 Review draft budget to ensure it meets organizational and program goals. Distribute draft budget to the budget team to develop consensus and collect recommendations. Modify budget with budget team input to ensure everyone understands and approves the revised draft budget.

 After presentation of the budget to the board, committee and internal stakeholders, approve proposed budget. The proposed budget may need to be revised, so include this possibility in your timeline.

 Implement budget to communicate budget, assign management responsibilities, implement in accounting system, monitor and respond to changes to the budget. It is important that you document budget decisions including writing down all budget assumptions.

A budget should be implemented with monthly distributions to anticipate the changes to monthly income and expenses.

Take a strategic approach to your budget, which might include a multi-year approach to create a better budget. A budget is a living document and narrative that tells the nonprofit’s story using numbers.

Sometimes a zero-based budget approach can help you to understand a budget from the ground up and provide a fresh perspective and generate new possibilities.

Jim Simpson, CPA and director of Financial Technologies & Management, is a nonprofit financial leader and trainer, CFO, controller, forensic consultant and software advisor, including Abila MIP Fund Accounting since 1999. He has served CFO, controller and software advisor for over 25 years to over 350 nonprofit organizations.

Contact Financial Technologies & Management to see how we can help your nonprofit with accounting solutions. You can schedule an appointment directly from the website at WWW.FTMLLC.COM, email info@ftmllc.com or phone at 317-819-0780.