Financial Management for Non-Profit Finance Staff The Painless, Common-Sense Approach
Learning Objectives • Describe the role that finance staff play in budgeting and financial management • Understand the importance of the fiscal budgeting process, the principles of preparing a well-designed budget, and how to develop a budget system • Learn how to use a variance analysis to spot unfavorable trending and manage costs • Understand how to effectively communicate financial information at each level of the organization • Describe the different types of audits and the circumstances under which they would apply 2
Learning Objectives • Define fraud and describe ways that fraud can be perpetrated and prevented • Discuss the most important elements of an internal control system and how financial controls evolve as an organization matures • Understand how to prepare an accurate CIC Cash Flow • Learn how to develop a system to track and monitor funded expenses, and manage slippage and overages • Understand the organization’s obligations under a Contribution Agreement and the processes associated with claiming expenses 3
Financial Management Who Does What? 50,000 feet • Treasurer: Chair of finance committee; liaison between board and finance committee; board financial expert • Finance Committee: Performs financial work of the board; vets budget and financial reports at detail level; investigates variances; makes recommendations to the board through the treasurer • Executive Director: Manages and monitors organization budget and budgeting process • Finance Staff/Bookkeeping: Prepares organization for budgeting process; develops organization budget with input from executive director and program staff; prepares financial reports, analyzes and explains variances; owns budgeting system 1,000 feet 4
Your Role as Financial Advisor • 80/20 rule as it applies to finance-related duties in contrast to non-finance staff; finance will always be more conversant in this area than non-finance colleagues • Most board members, executive directors, program managers/ coordinators do not have any training in finance • Finance plays a pivotal role in giving financial data meaning; helping others to use this information to make sound decisions • Talk about financial management often and in a manner that demystifies it and encourages understanding • Take advantage of opportunities to coach others on financial management 5
The Key to Financial Management • The single most important tool in financial management is the organization’s budget • Organization’s primary financial control mechanism • Use a system for developing the budget which allows for effective analysis and revisions • Invest sufficient time in the budgeting process • Coach others on how to budget correctly 6
Budgeting: 3 Steps to Success Step 1: Preparation and Development • ‘Zero- based’ budgeting with substantiated assumptions • Consider historical trending • Do your research - don’t guess about your costs or revenue generating capabilities • Record and save details on each budget line item for reference later on • Your budget line items should match the accounts in your bookkeeping system and correlate with your audited statements • Restate your annual budget by month and consider program activities and seasonal variances (don’t just divide by twelve) • Plan for carry-overs from previous years, such as deferred revenue and expenses 7
Budgeting: 3 Steps to Success Step 2: Monitoring and Management • Prepare and review a budget variance report every month • Expect few variances if the budget is well prepared • Explain all significant variances; act on those that could jeopardize the year-end outcome • Know the unit cost for each type of service • Know the high risk areas of the budget and have a contingency plan Step 3: Oversight • Review major budget assumptions for prudence • Be wary of ‘hockey stick’ forecasting, especially with fundraising income • Control performance and sustainability through analysis of significant variances and trending 8
Roles in Budgeting 9
The Annual Budgeting Process • The budget is too important to put together without adequate planning, preparation and consultation • Create a project plan for the annual budgeting process • Back up your timeline from the date that the budget must be approved by the board • Factor in time for vetting through the finance committee • Involve key internal stakeholders • Communicate the plan widely to staff and the board 10
A Budgeting System That Works Salary Grid Reserves & Detail of Investments Benefits Consolidated Budget Allocation Program of Costs By Personnel Funder Central Administration Costs 11
A Budgeting System That Works Current Step 1 Step 2 Step 3 Step 4 Step 5 Step 6 Executive Director No range No range, negotiated salar negotiated salary otiated salary Manager $55,000 $56,100 $57,222 $58,366 $59,534 $60,724 Salary Coordinator $45,000 $45,900 $46,818 $47,754 $48,709 $49,684 Program Assistant $36,000 $36,720 $37,454 $38,203 $38,968 $39,747 Grid Students/Interns $22,000 $25,480 $29,120 $32,760 Manager $30.22 $30.82 $31.44 $32.07 $32.71 $33.37 Coordinator $24.73 $25.22 $25.72 $26.24 $26.76 $27.30 Program Assistant $19.78 $20.18 $20.58 $20.99 $21.41 $21.84 Students/Interns $12.09 $14.00 $16.00 $18.00 Benefit Rate Max % Details of CPP 4.95% up to $48,300 ($3,500 Exemption) $2,217.60 4.95 EI 1.78% x 1.4 = 2.492% up to $44,200 $1,101.46 2.49 WSIB $.77 per $100 0.77 Benefits EHT 1.95% $400,000 Exemption 1.33 Group Health 7% 7.00 RRSP 2% 2.00 Total 18.54 12
A Budgeting System That Works Allocation of Personnel Last This This Hourly United Other Funded Variance Funding Total Name Position Year’s Year’s Year’s CIC MCI Trillium Rate Way Income Ratio Salary Salary Actual Program 0 $36,000 $27,000 $19.78 $9,000 $9,000 $8,000 $26,000 $1,000 96% Assistant Total Salaries Total Benefits Group Health RRSP Statutory WSIB Total Salary & Benefits 13
A Budgeting System That Works Calculating and Allocating Central Administration Costs • Calculate total, annual Central Administration costs • Fairly and equitably allocate these total costs by funder/program • Rationale for allocated must be documented, clear and substantiated: ‣ Based on actual costs: - Actual expenditures and staff time records - Time consuming with considerable record-keeping - Difficult to deal with shared resources ‣ Based on a cost factor or rate: - Number of full-time project staff (FTEs) - Program direct costs as a % of total direct costs - Program funding as a % of total organization’s funding 14
A Budgeting System That Works Program Costs By Funder Organization Detailed Budget Last Year’ This Year’s Defer to United Other Total Changes CIC MCI Trillium Fiscal Year ______________ Budget Budget Next Year Way Income Funded Income Citizenship and Immigration Canada Ministry of Citizenship and Immigration United Way Trillium Fundraising Donations Memberships Total Income Expenses Program Expenses Salaries and Benefits Staff Development Staff Travel Board Expenses Meeting Expenses Program Supplies Participant Travel Honouraria Central Administration Audit Bank Charges Insurance Equipment Rental and Repair Rent and Utilities Telephone, Fax and Internet Total Expenses Transfer to Reserves Surplus (Deficit) 15
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