Financial Management for Non-Profit Program Staff The Painless, Common-Sense Approach
Learning Objectives • Describe the role that program staff play in budgeting and financial management • Understand basic accounting principles • Understand the importance of the fiscal budgeting process in the financial management of an organization • Describe the steps involved in program planning from outcomes to evaluation, and a methodology for translating work plan activities into a budget • Learn how to monitor and manage a budget, including the use of a variance analysis to spot unfavorable trending • Understand how to effectively communicate financial information at each level of the organization 2
Learning Objectives • Describe the different types of audits and the circumstances under which they would apply • 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 • Learn how to monitor and manage slippage and overages • Describe the differences between a grant and Contribution Agreement • Understand the organization’s obligations under a Contribution Agreement and the processes associated with claiming expenses 3
Role of Program Staff in Financial Management • Primary focus is developing, monitoring and managing program budgets • Provide information to supervisor and finance on staffing and capital requirements • Communicate budget-related information to supervisor and front-line staff • Manage slippage/overages and explain variances • Participate in the preparation of funder reports and proposals • Reduce financial risk by adhering to financial policies 4
Accounting Basics Income vs. Cash flow Payment of $1,200 Quarterly Photocopier Lease in April April May June Bank $1,200 Account Cash Flow $1,200 Reporting Income $400 $400 $400 Reporting 5
Accounting Basics Fund-Based Accounting Fund-based accounting is the process by of tracking and reporting the financial activity of an organization by each funder/project; a manner increasingly preferred by government and private funders alike as it completely segregates each funders’ financial information: Organization XYZ Total Funder 1 Funder 2 Funder 3 Funder 4 Funder 5 Fiscal Year ______________ Organization Income Funder 1 Funder 2 Funder 3 Funder 4 Funder 5 Total Income Expenses Expense Category 1 Expense Category 2 Expense Category 3 Expense Category 4 Expense Category 5 Expense Category 6 Total Expenses Surplus (Deficit) 6
Why Bother Budgeting? • The budget is the organization’s single most important tool in financial management and its primary financial control mechanism • Ensures that the organization is able to pay its bills today in order to offer services tomorrow • Demonstrates that donated resources and funding dollars have been used efficiently and effectively • Demonstrates accountability to funders and stakeholders • Confirms ability to use scarce resources wisely • Ensures present resources are managed effectively for the long term survival of organization 7
Roles in Budgeting 8
Budgeting: 3 Steps to Success 1. Preparation and development: Devote sufficient time to the process, organize your work and make sound assumptions 2. Monitoring and management: Analyze results (actuals) against budget on a monthly basis; take action to align results with the budget 3. Oversight: Validate budget assumptions; control performance and sustainability through analysis of variances and trending 9
Preparation and Development • Start with a ‘zero budget’, then consider historical trending • Do your research - don’t guess about your costs • Record and save details for each budget line item for reference later on • Restate your annual budget by month and consider seasonal variances and program activities (don’t just divide by twelve) • Goal is to have a break-even bottom line - no surplus, no deficit 10
Outcomes to Evaluation Monitoring Desired Logic Work Budget and Outcomes Model Plan Evaluation 11
Work Plan to Budget Work Plan to Budget Template Program/Project Name:____________________________________________________ Start Date:__________________ End Date:__________________ Budget Year:__________________ Page:_______ OF _______ Program/Project Expenses Work Plan Activity Expense Type Unit Cost # Participants Frequency Total Scheduled For Program Meetings Facility $500.0 1.0 4.0 $2,000 Apr, Jul, Oct, Jan Meeting Expenses $15.0 20.0 4.0 $1,200 Apr, Jul, Oct, Jan Travel $5.0 20.0 4.0 $400 Apr, Jul, Oct, Jan $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Staffing Capital (Computers, Equipment) Name Position Hours per Week Start/End Date Item Required Estimated Cost Required By Mary Smith Program Assistant 25.0 July/12 - Mar/13 Laptop $2,200 July 12
Central Administration Costs What are they and who is responsible for them? • Direct costs are clearly and easily attributable to a specific program (e.g. program supplies, counsellors’ salaries, meeting costs, participant travel) • Indirect costs are not exclusively associated with a specific program, but are necessary to the operation of the program; these costs are shared among programs and, in some cases, among departments in an organization (e.g. executive director’s salary, administrative and management salaries, occupancy costs, telephone, bookkeeping, insurance) • Central Administration costs are considered in-direct or shared costs • Central Administration budget is the responsibility of finance with input from supervisors and program coordinators • Central Administration costs should be a part of every program budget 13
Central Administration Costs How are they calculated and allocated to each program? • 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
Monitoring and Management • Involve front-line staff in the development and ongoing monitoring of the budget • Year-to-year comparisons are effective at spotting problems if the same program is run again • Keep year-to-date spending at the same percentage of budget as year-to-date funding income, to avoid a deficit • Know the high risk areas of the budget and have a contingency plan 15
Monitoring and Management • Prepare and review a budget variance report every month; variances are significant at 5 -10% over or under budget • Expect few variances if the budget is well prepared • Explain all significant variances; act on those that could jeopardize the year-end outcome • Prepare a year-end estimate at the half-way point of the budget year and make spending adjustments as required 16
Variance Reporting Monthly V Monthly Variance Analysis nce Analysis nce Analysis Monthly V Monthly Variance YTD Va YTD Variance Monthly Monthly YTD YTD Account Budget Actual $ % Budget Actual $ % Variance Explanation $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% $ 0 0% • Explain all significant variances each month (5 - 10% off budget) • The more accurate the budget (especially monthly), the fewer the variances • Take action promptly on a significant variance that recurs two months in a row 17
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