Tag Archives: Accountability

Nonprofit News and Updates

This is a great way to start of a blog post, and awesome Infographic from “America’s Nonprofit Sector: A Primer” from the Foundation Center. Please click on the image to enlarge.

Elections and Nonprofits

Many elections this year around the country have issues that will directly affect nonprofit organizations. The National Council of Nonprofits has a nice rundown here of more than 140, check it out to see what is happening in your state.

Washington Nonprofits will be having upcoming events around elections and what nonprofits can do, click through to see all that they are doing this election season.

Nonprofit HR

Do you know about Seattle’s new paid sick/safe leave ordinance that takes effect September 1? Washington Employers has good information on the program and, if you are affected by this, what to do.

Finance and Regulations

The Nonprofit Times has a good piece via their Exempt e-newsletter about new and proposed state regulations will make things harder for some nonprofits. It’s good to know what is happening in other states so you can have a ready response in case legislation like these come to yours.

Two articles from the Chronicle of Philanthropy detail the pitfalls in spending, fundraising and especially outsourced fundraising. The articles feature two veterans charities – why do these types of organizations seem so ripe for potential scams – and one animal related group, but there are lots of similarities, red flags and warnings in them for both donors and nonprofits. The first is here, the second is here.

This may be the most interesting piece, to me at least, that came out recently. The American Institute of Certified Public Accountants has released a draft of a proposed not-for-profit guide. It is primarily designed for CPAs performing work for not-for-profits, but it offers insight to all as to what issues the field thinks is important. I’ll be looking them over and probably letting them know my two cents in the comment period.

Management and Money

Both of these articles from the Nonprofit Quarterly stood out to me recently. Is managing a complex organization a game? This article makes the case that it is not. And do you know what the right mix of resources is for your organization? If so have you achieved that mix of income? This article is helpful for identifying so areas of thought you might not have considered before.

Thanks so much.

Nonprofit News Roundup

It has once again been too long since this site had an update so let’s start off with some interesting things that have come across my desk of late. But I first want to take a moment to say goodbye to a colleague and mentor who passed away last month, Flo Green. I started working for her at the California Association of Nonprofits at the end of 1999. In 2005 she worked with me to develop CAN’s first day long nonprofit accounting training workshop. Since then I’ve presented variation of that workshop to hundreds of nonprofit professionals and it is to her that I owe a great deal of thanks for setting me on the path I am on today. She will be deeply missed.

 Communicating Your Finances

This can be a tricky topic. How can nonprofit mangers communicate what is in their organization’s financials to the Board? How can a Board get the best information from staff? Is anybody sure they are asking the right questions? I consider it an integral part of my work to help explain the financial picture that the reports I put together tell, and to teach clients and others how to read their financials.

There are other resources out there like this article from Guidestar about 3 questions Board members should be asking themselves. This article from the great Nonprofit Assistance Fund talks about red flags board members may miss and how to prevent that.

Not directly related to finances but still good for board to think about, questions related to ongoing mission and relevancy for your nonprofit.

Sharing Resources

I’ve written about IdeaEncore before and I wanted to share two recent collections of resources; Financial Reporting and Documentation and some 990 preparation and understanding resources. Both have some nice resources that could save a lot of work over recreating the same thing at your organization.

Want to know where your taxes go and, perhaps more importantly, how much your tax bill this year will be? Check out the AICPA’s Total Tax Insights website. It includes a helpful calculator:

The Total Tax Insights calculator is the first comprehensive tax calculator that estimates your tax obligation based on place of residence and breadth of taxes paid. It’s customized for each state and for the District of Columbia and Puerto Rico, and includes more than 20 taxes, such as federal, state, local, Social Security and Medicare, sales, property and gasoline.

Elections

What can nonprofits do during election time? The Alliance for Justice is my go to resource for those questions. Check out their Advocacy Digest for election time resources. There is still a lot of misinformation out there about how nonprofits can or cannot lobby, AFJ has all the information you’ll need to do any type of advocacy activities.

Other News

Another Washington State Management Support Organization is shutting its doors. The Nonprofit Center in Tacoma closed last Fall and now the Alliance FOR Nonprofits is winding down. Washington Nonprofits and 501Commons will continue to provide support for the areas both organizations served.

Thanks so much.

Functional Accounting

The Secrets of Cost AllocationA few years back I co-wrote an article about getting accurate numbers from your financial system for the California Association of Nonprofits that was based on a workshop I developed. This blog post and the last post excerpt some of the material from that piece. For folks who would like the whole article you can click the above link. The other post is on cost allocation, this one is on setting up a functional accounting system.

Functional accounting is a method of accounting that is based on the organization’s major types of activities, primarily (a) program or mission-based services and (b) supporting services such as administration, governance and fund development.

Functional accounting allows you to identify three key characteristics of every dollar coming into and going out of the organization:

Dollars coming in (income) Dollars going out (expense)
Who Who is providing the dollar (i.e., the specific funder) Who is paying for an expense (i.e., the specific funder)
What What type of income it is (e.g., grant, contract, earned, etc.) What the dollar will be spent on (e.g., payroll, supplies, etc.)
Why Why they are providing the dollar (i.e., for which program or purpose) Why the dollar is being spent (i.e., for which program or purpose) Administrative and Fundraising would be a Why as well.

Breaking down expenses by what and why reflects the broad outlines of major nonprofit reporting requirements. For example, the IRS Form 990 asks nonprofits to divide expenses by program, management/general and fundraising. A statement of functional expenses is required as part of the audit for voluntary health and welfare organizations.

But a statement of functional expenses is also recommended for every organization for three reasons. First, unless your organization is very small (less than $25,000 in revenue annually), you probably have to file a 990 or 990-EZ already. Second, even if you are very small now, you might someday be large enough to need an audit – so you might as well get in the habit of creating a statement of functional expenses right now.

Third, and perhaps more importantly, a statement of functional expenses is an ideal method for tracking the real costs of program and supporting activities, making it an invaluable tool for decision-making. It allows you to see exactly what Program X is costing, what Program Y is costing, whether your fundraising is proportionate to the areas that need it, whether you want to build, maintain or scale back a program and so forth.

The information found in a statement of functional expenses can most easily be organized, streamlined and accessed through the meeting of two basic functional accounting tools: your chart of accounts and your functional areas.

Chart of Accounts

A chart of accounts consists of numbered account names that describe the types of income and expenses that your organization experiences over time. It is the list of categories that tracks the what of each dollar coming into and going out of your organization.

Your chart of accounts should be flexible enough to change as your organization changes. For example, you want to be able to insert new income and expense categories as they arise. But you want to be able to insert them within the broader categories of the existing chart instead of simply appending them to the end of it, which is why it is numbered by the tens, hundreds and thousands instead of 1, 2, 3 and so on.

Functional Areas

Functional areas place the who and the what of each dollar into the why – the program or service for which that dollar is designated. Many organizations that I have worked with tend to track the why by funder or contract rather than by mission-based purpose. But if you use Functional Accounting, you can use functional areas to cross-cut funder information with programs/services and income or expense line items so you can accurately track any given dollar in its journey through your organization. If you haven’t already developed functional areas, start with your mission. Read your goals and values statements, and take a look at how your nonprofit is divided programmatically. Identify each larger purpose, within the overall organization, on which you spend time and money.

Each transaction coming into or going out of the organization should be identified with a code corresponding to the who, the what and the why of that transaction. The more you can integrate these three pieces, the higher-quality, more accurate reports you will produce. And you will produce them more quickly. If your accounting system cannot slice and dice your numbers these three ways, you might consider an upgrade of your financial software.  Don’t forget also to integrate those three questions – who, what and why – into all your relevant processes such as payment requisition forms and record-keeping for bills that come in. It can take some time to set up, but once it is set up, tracking and reporting runs very smoothly. And it will make your auditor happy, too.

If you would like to learn about creating a functional accounting system and policies for your nonprofit please click on the image below.

My Financial Management Plan