Financial Analysis for NPOs

NASCSP Monitoring –

Principles & Practices

Training

© 2004 Wipfli Young

Presented by:

Denes L. Tobie, CPA

Example Sub Title

© 2005 Wipfli LLP

We’re All in this Together!

Where does this session fit into the four circles?

© 2005 Wipfli LLP

Agenda

Topic One – OMB Circulars Then and Now

Topic Two – Head Start Prism

Fiscal Checklist

Topic Three – Financial Analysis

Topic Four – Understanding the

Annual

Topic Five – Other miscellaneous items to be aware of in your agency

© 2005 Wipfli LLP

Agenda

Meet the trainer

• Denes L. Tobie, CPA

• Partner with Wipfli LLP, with the firm since 1997

• Nonprofit Auditor who works exclusively with

Nonprofits

• Currently oversees audits in Iowa, Idaho, New

Jersey, Mississippi, Texas, Tennessee, Ohio, Illinois,

Wisconsin, Michigan, Arkansas, Nevada, Missouri and Indiana

• Trainer at GFP conference in Las Vegas for 6 years

• Training for Board of Directors, State Agencies and

Staff, both internal and external

© 2005 Wipfli LLP

Learning the Lingo

• OMB = Office of Management and Budget

• DHHS = Department of Health and Human

Services

• GAAP = Generally Accept Accounting

Principles

• SAS = Statement on Auditing Standards

• AICPA = American Institute of Certified Public

Accountants

• CFR = Code of Federal Regulations

• CFDA = Catalog of Federal Domestic

Assistance

• PRISM = Program Review Instrument for

Systems Monitoring

© 2005 Wipfli LLP

Topic One –

OMB Circulars – Then and Now

I.

ADMINISTRATIVE REQUIREMENTS FOR NON-

PROFIT ORGANIZATIONS (A-110)

A. Original circular – July 1, 1976

B. Last major revision – November 29, 1993

C. Changes since November 1993 revision

1. October 13, 1994 – Increased small purchase threshold to $100,000

2. August 29, 1997 – Implemented Single

Audit Act Amendments of 1996

3. November 6, 1999 – Freedom of Information Act request and research data revisions

D.

DHHS implemented as 45 CFR Part 74

© 2005 Wipfli LLP

Topic One –


II.

COST PRINCIPLES FOR NONPROFIT ORGANIZATIONS

(A-122)

A. Original circular – June 27, 1980

B. Changes since June 27, 1980

1. 1983 and 1984 – Added lobbying costs to selected items of cost and clarified documentation required relating to lobbying

2. October 6, 1995 – Revised interest costs to allow interest

3. June 1, 1998 – Added additional unallowable costs and clarified other costs

C. DHHS adopted by 45 CFR 74.27

D. Updated and revised, issued on May 10, 2004 –

Mainly clarifications and more user friendly

© 2005 Wipfli LLP

Topic One –


III.

AUDIT OF STATES, LOCAL GOVERNMENTS, AND OTHER

NONPROFIT ORGANIZATIONS (A-133)

A. Original circular – March 16, 1990

B. Major revision – June 30, 1997

1. Merged in A-128 audit requirements for governments

2. Raised minimum audit threshold from $25,000 to $300,000

3. Changed due date to nine months

4. Created risk based approach for determining major programs

5. Created a data collection form

6. Revised definitions for audit findings and questioned costs

7. Added responsibilities for auditees

8. Provided audit submission process

© 2005 Wipfli LLP

Topic One –


III.

AUDIT OF STATES, LOCAL GOVERNMENTS, AND OTHER

NONPROFIT ORGANIZATIONS (A-133) (continued)

C. Annual revision to Compliance Supplement

D. Revision to Single Audit Collection Form and instructions (effective for audit periods after 01/01/01)

E. DHHS adopted by 45 CFR 74.26 and 92.26

F.

1/1/04 Minimum audit threshold raised to $500,000

© 2005 Wipfli LLP

Topic Two – Head Start Prism Fiscal

Checklist

• See the attached Fiscal Checklist

© 2005 Wipfli LLP

Topic Two – Head Start Prism Fiscal

Checklist

• Broken down into 5 Areas:

• Section I – Fiscal Risk Indicators, 12 questions

• Section II – Internal Controls and Monitoring, 18 questions

• Section III – Fiscal Accountability, 18 questions

• Section IV – Reporting, 7 questions

• Section V – Summary Standards, 2 questions

Total 57 Questions of Fun!!!

© 2005 Wipfli LLP

Topic Three –

Financial Analysis

• Financial Analysis covers all aspects of your organization and can be incorporated into, and obtained from, many aspects of your organization, including:

 Program reports

 Program financial statements

 Agency financial statements

 Tax returns

© 2005 Wipfli LLP

Topic Three –


• You will learn how to look at your internal information differently than you ever have before and benefits will be gained

•

Provides you with executive level review of key financial data

 Establishes additional internal control points within your own systems

 Allows for more specific and efficient planning for the audit process

© 2005 Wipfli LLP

Topic Three –


• Required by regulations (OMB Circular A-110

Financial and Program Management)

• Also implied by DHHS in Head Start and

Community Services Block Grant programs

•

Improve the standards at which you operate your programs

• Provides more information to the Board and

Executive Director

© 2005 Wipfli LLP

Topic Three –


• Most important item to review is the agency-wide trial balance

(How many currently review on an agency-wide basis? Why not?)

(Do you know what to look for?)

© 2005 Wipfli LLP

Topic Three –


FOUR (4) KEY QUESTIONS YOU SHOULD ASK

• What is it?

• Where is it from?

• What does it mean?

• What do we do with it?

© 2005 Wipfli LLP

Topic Three –


• First thing to know about the trial balance is where do the numbers come from.

• Must have a review system in place that requires balances to be reviewed, reconciled, and adjusted on a regular basis.

© 2005 Wipfli LLP

Topic Three –


• If the numbers aren’t supported by reliable information, the rest of analytical process is a waste of time.

• Also, if numbers aren’t reliable the information reported to funding agencies, program directors and your board is incorrect.

(And a waste of their time!)

© 2005 Wipfli LLP

Topic Three –


• What should you be looking for on the agency-wide balance sheet?

 Does your balance sheet balance?!

 Does the bank reconciliation agree to the general ledger?

 Are there any credit balances in your asset accounts?

© 2005 Wipfli LLP

Topic Three –


• What should you be looking for…

(continued)

 Do subsidiary ledgers support the reported amounts on the balance sheet?

 Did we buy any equipment this month with agency funds? Was it recorded properly?

© 2005 Wipfli LLP

Topic Three –


• What should you be looking for…

(continued)

 Are there any debit balances in the liability accounts?

 Was any new debt incurred? If so, was it recorded properly?

(Can be a very detrimental adjustment at yearend if not recorded properly)

© 2005 Wipfli LLP

Topic Three –


• Overall, does it look reasonable?

Any odd looking accounts? If so, look into them now!!! Don’t wait for your auditors to find them.

You won’t have reliable information and it will cost more during your audit!!!

© 2005 Wipfli LLP

Topic Three –


• If your balance sheet is correct, then your revenues and

expenses are usually correct, but may be misclassified.

© 2005 Wipfli LLP

Topic Three –


• Next, analyze your individual program trial balances and results.

 Any odd looking balances in the revenues?

 Any odd looking balances in the expenses?

© 2005 Wipfli LLP

Topic Three –


• Next, analyze your individual program trial balances...

(continued)

 Have all revenues been recorded properly?

 What is the bottom line? Are you over spent?

 Have you recorded all of your invoices properly or receivables properly?

© 2005 Wipfli LLP

Topic Three –


• Next, analyze your individual program trial balances...

(continued)

 How is the program doing compared to budget?

 Any significant over spent areas?

 Do you need to get modification from your funding source?

 Have you followed internal procedure to get executive director or board approvals for budget modifications?

© 2005 Wipfli LLP

Topic Three –


• Next, start to look at key numbers, what do you know about each program?

 Are you on track to serve the number of participants you are required to serve?

 What is your year-to-date in kind received, are you on track to get the amount required?

© 2005 Wipfli LLP

Topic Three –


• Finally, look at trends. Should be analyzing your programs based on individual cost.

• What is your average cost per child that month?

• How does that compare to last month?

• What about your annual cost per child budget?

• Is it over or under your projections?

© 2005 Wipfli LLP

Topic Three –


Total Federal Head Start Grant annually

(Calendar year end)

Number of children to serve

Annual amount received per child

Monthly amount received per child

Budgeted costs per month

Budgeted costs year to date

Actual costs per month

Actual costs year to date

Year to date variance

Children to serve

Actual children served

Cost per month per child

In Kind requried

In Kind received

Year to date required

Year to date received

Year to date variance

$ 3,000,000

600

$ 5,000

$ 417

Jan

$ 250,000

$ 250,000

Feb

$ 250,000

$ 500,000

March

$ 250,000

$ 750,000

April

$ 250,000

$ 1,000,000

$ 246,540

$ 246,540

$ 238,950

$ 485,490

$ 272,480

$ 757,970

$ 252,375

$ 1,010,345

$ 3,460 $ 14,510 $ (7,970) $ (10,345)

600

589

600

604

600

602

600

610

$ 419 $ 396 $ 453 $ 414

$ 50,000

35,000

50,000

$ 35,000

$ 50,000

48,000

100,000

$ 83,000

$ 50,000

64,000

150,000

$ 147,000

$ 50,000

56,000

200,000

$ 203,000

(15,000) (17,000) (3,000) 3,000

© 2005 Wipfli LLP

Topic Three –


• When deciding on what trends to look at, keep in mind “Key Performance

Indicators”

• What is important to each program

• Key performance indicators are separate from trends, but you need to monitor both aspects

• Make sure they are meaningful

© 2005 Wipfli LLP

Topic Three –


Next, use the key numbers to analyze trends in your programs…

• What is your transportation cost per child?

• What are your average meal costs for the HS children?

© 2005 Wipfli LLP

Month of

Program

Topic Three –


SUMMARY FINANCIAL REPORT

Funding

Source

Funding

Period

Current Month Program Period

To Date To Date

Total

Grant Unexpended

TOTALS $ $ $ $ -

© 2005 Wipfli LLP

Month of

Program

Topic Three –


PERFORMANCE REPORT

Funding

Source

Funding

Period

Performance

Required

Performance

To Date Comments

TOTALS $ $ -

© 2005 Wipfli LLP

Topic Three –


• Assign measurables to each aspect of your organization

• If you think it is a waste of time, don’t do it, but we challenge you to tell us how you can manage your “ business ” without it!!

© 2005 Wipfli LLP

Topic Three –


Analysis of this type allows you to be proactive not reactive !!

© 2005 Wipfli LLP

Topic Three –


• You can look at any program or cost center to begin trend analysis.

• Once established, they can be updated monthly to provide on going information to you and your program directors.

© 2005 Wipfli LLP

Topic Three –


• They can be early warning indicators of an impending problem.

• Act on it and correct the problem, or do nothing and jeopardize the program?

© 2005 Wipfli LLP

Topic Three –


• Lastly, do a budget vs. actual analysis for the agency-wide information and the individual program information.

• This is required in both the HS and CSBG programs.

• HS governance regulations require it

© 2005 Wipfli LLP

Topic Three –


• To do this you need to be sure to budget correctly. This means, if your program does not operate for 12 months, be sure your budget doesn’t make that assumption, otherwise your budget will have odd fluctuating variances.

(How many do agency-wide budgets?)

© 2005 Wipfli LLP

Topic Three –


• A true budget reflects anticipated activity during certain times of the year, not equally throughout the year

© 2005 Wipfli LLP

Topic Three –



(Calendar year end)



$ 3,000,000

600

$ 5,000


ASSUMES SAME ACTIVITY EACH QUARTER

Budgeted costs per quarter




Variance per quarter

Variance year to date

$ 417

1st quarter

$ 750,000

$ 750,000

2nd quarter

$ 750,000

$ 1,500,000

3rd quarter

$ 750,000

$ 2,250,000

4th quarter

$ 750,000

$ 3,000,000

$ 978,997

$ 978,997

$ 848,951

$ 1,827,948

$ 272,480

$ 2,100,428

$ 905,550

$ 3,005,978

$ (228,997)

$ (228,997)

$ (98,951)

$ (327,948)

$ 477,520

$ 149,572

$ (155,550)

$ (5,978)

© 2005 Wipfli LLP

Topic Three –



(Calendar year end)



$ 3,000,000

600


ASSUMES SAME ACTIVITY EACH QUARTER

$ 417







1st quarter

$ 750,000

$ 750,000

2nd quarter

$ 750,000

$ 1,500,000

3rd quarter

$ 750,000

$ 2,250,000

4th quarter

$ 750,000

$ 3,000,000

$ 978,997

$ 978,997

$ 848,951

$ 1,827,948

$ 272,480

$ 2,100,428

$ 905,550

$ 3,005,978

$ (228,997)

$ (228,997)

$ (98,951)

$ (327,948)

$ 477,520

$ 149,572

$ (155,550)

$ (5,978)

BUDGET BASED ON ACTUAL PERFORMANCE ACTIVITY







1st quarter

$ 920,000

$ 920,000

2nd quarter

$ 925,000

$ 1,845,000

3rd quarter

$ 270,000

$ 2,115,000

4th quarter

$ 885,000

$ 3,000,000

$ 978,997

$ 978,997

$ 848,951

$ 1,827,948

$ 272,480

$ 2,100,428

$ 905,550

$ 3,005,978

$ (58,997)

$ (58,997)

$ 76,049

$ 17,052

$ (2,480)

$ 14,572

$ (20,550)

$ (5,978)

© 2005 Wipfli LLP

Topic Three –


• Report Format

• Use technology to help prepare, don’t recreate the wheel, saves time and reduces the possibility of human error.

• Use same format each month so everyone gets used to it and becomes familiar with the process and reports.

© 2005 Wipfli LLP

Topic Three –


• Present trend analysis

• It can present a lot of information in a concise manner

• Pictures are sometimes easier to follow than all of the numbers

© 2005 Wipfli LLP

Assets, Liabilities, and Net Assets

1995-2004

5000000

4500000

4000000

3500000

3000000

2500000

2000000

1500000

1000000

500000

0

1995 1996 1997 1998 1999 2000 2001

Total Assets Total Libilitites Net Assets

2002 2003 2004

© 2005 Wipfli LLP

Revenues and Expenses 1995-2004

$8,000,000

$7,000,000

$6,000,000

$5,000,000

$4,000,000

$3,000,000

$2,000,000

$1,000,000

$0

1995 1996 1997 1998 1999 2000

Revenue Expenses

2001 2002 2003 2004

© 2005 Wipfli LLP

Changes in Unrestricted Net Assets

1995-2004

$350,000

$300,000

$250,000

$200,000

$150,000

$100,000

$50,000

$0

1995 1996 1997 1998 1999 2000

Unrestricted Net Assets

2001 2002 2003 2004

© 2005 Wipfli LLP

Topic Three –


• Annually, someone should be analyzing the agency-wide trial balance, be sure that all accounts reconcile with supporting information

© 2005 Wipfli LLP

Topic Three –


• Be sure to save this supporting documentation for your auditor, it will save time later and make the audit process more efficient.

• Consider creating an audit book

(separate binder with tabs) to store this information and keep it by individual account.

© 2005 Wipfli LLP

Topic Three –


• Any questions you ask at year- end when reviewing your account analysis, chances are your auditor will (or should) ask the same questions.

© 2005 Wipfli LLP

Topic Three –


• Compare the yearend balances to prior yearend balances.

• Can you explain these variances?

• Document so that whenever the question comes up again

(executive director, program manager, auditor), you have the answer at your finger tips and don’t have to research it again.

© 2005 Wipfli LLP

Topic Three –


• Does your physical inventory of property and equipment agree with your property and equipment on your general ledger.

•

Required to be done once every two years!!

• If your property and equipment balances increased, has your depreciation expense increased?

• If property and equipment is down, and disposals were sold, was the sale recorded properly?

© 2005 Wipfli LLP

Topic Three –


• How do your deferred revenues compare to prior years? Can you explain the variances from prior years?

• Finally, most important number to verify is net assets. Do they agree with your prior year audit? If not, why?

• There should be NO adjustments to this account during the year.

© 2005 Wipfli LLP

Topic Three –


• What other accounts do you have? What would account for their fluctuations? Can you explain the variances?

• Analytical review can be a key tool to use when closing the books at the end of the year.

• Auditors use it and so should you!

© 2005 Wipfli LLP

Topic Three –


• Next, look at your income statement in comparison to prior years.

• Are revenues up?

• Did you get new programs?

• Did you get increases in your existing programs?

• Is your in kind revenue up?

• How about donations?

• Did you have a new fundraising campaign?

© 2005 Wipfli LLP

Topic Three –


• How do your overall expenses look?

• Are salaries up? If so, is this increase comparable to wage increases, or did it come from new staff and new programs?

(Remember to relate this to your balance sheet amounts for accrued payroll and benefits.)

• Are space costs up?

• Are you renting new facilities?

• Or have your lease costs increased?

• Are you budgeting for anticipated (or built in) rental cost increases?

© 2005 Wipfli LLP

Topic Three –


• How does your depreciation expenses compare to prior years? Again, relate this to your balance sheet analysis for property and equipment.

• How about interest expense?

• Does it agree with your year end statement from your bank?

• How have you planned for or budgeted your insurance increases?

© 2005 Wipfli LLP

Topic Three –


• Overall, what is your bottom line?

• Excess revenues over expenses?

• If so, why?

• Fee for service activities?

• Fund-raising campaign?

• Excess expenses over revenues?

• Are programs overspent?

• Did you lose funding and not cut expenses?

© 2005 Wipfli LLP


Annual Audit

AUDITEE RESPONSIBILITY UNDER OMB CIRCULAR A-133

The auditee shall:

A.

Identify , in its accounts, Federal awards received and expended (CFDA title and number, award number and year, Federal agency, and pass-through entity. (

§___.300)

B.

Maintain internal control. ( §___.300)

C.

Comply with laws, regulations, and award agreements. (

§___.300)

D.

Prepare appropriate financial statements, including schedule of Federal awards. ( §___.300)

E.

Ensure audits are properly performed and submitted when due. (

§___.300)

F.

Follow-up and take corrective action on audit findings. ( §___.300)

G.

Follow procurement standards prescribed by OMB. (

§___.305)

H.

Prepare a schedule of expenditures of Federal awards. (

§___.310)

1. List programs by Federal agency

2. List pass-through entity and number

3. Provide expenditures by CFDA number

4. Include notes regarding accounting policies

5. Identify amount provided to subrecipients

6. Include noncash assistance, loans, etc.

© 2005 Wipfli LLP


Annual Audit

I.

J.

Prepare a summary schedule of prior audit findings. (

§___.315)

Prepare an action plan for current audit findings. ( §___.315)

K.

Submit audit package and data collection form by due date to Federal clearinghouse and to each pass-through entity. (

§___.320)

L.

Sign and certify data collection form. ( §___.320)

M.

Make copies available for public inspection (unless restricted by law or regulation. (

§___.320)

N.

Submit copy of any management letters issued by auditors, if requested.

(

§___.320)

O.

Keep one copy of form and reporting package (financial statements and schedule of Federal expenditures, summary schedule of prior findings, auditor’s reports, and corrective action plan) for three years from date of submission.

P.

Work with the auditor to take corrective action. ( §___.400)

© 2005 Wipfli LLP

Topic Four – Understanding the Annual

Audit

A-133 Audit Reports and

Reporting Package Responsibilities

Responsible Party

Item

Financial statements

Opinion on Financial Statements

Schedule of Expenditures of Federal Awards

Opinion on Schedule of Expenditures of

Federal Awards

Report on Internal Control

Report and Opinion on Compliance

Schedule of Findings and Questioned Costs

Summary Schedule of Prior Audit Findings

Corrective Action Plan

Data Collection Form

© 2005 Wipfli LLP

Auditee Auditor



















 


Audit

• Whose statements are they anyway?

 They’re yours!

 Auditor gives an OPINION only on them —does not

PREPARE them

© 2005 Wipfli LLP


Audit

• See Sample NPO, Inc. Financial

Statements attached

© 2005 Wipfli LLP


Audit

• Parts of an Audit Report

• Financial

 Auditors Opinion

 Statement of Financial Position

 Statement of Activities

 Statement of Cash Flows

• Notes to the Financial Statements

© 2005 Wipfli LLP


Audit

• Parts of a Single Audit Report

• Funding source requirements:

• Schedule of Program Activity

• Schedule of Expenditures of Federal Awards and

List of Programs

• Report on Internal Control over Financial

Reporting and on Compliance and other

Matters

• Report on Compliance with Requirements

Applicable to Each Major Program and

Internal Control over Compliance

• Schedule of Findings and Questioned Costs

© 2005 Wipfli LLP


Audit

ITEMS THAT SHOULD BE REVIEWED AND

UNDERSTOOD:

• Opinion, what type was issued on the financial statements, unqualified, qualified, etc.

• Were there any restrictions or qualifications?

© 2005 Wipfli LLP


Audit


UNDERSTOOD:

On the Statement of Financial Position:

• Significant changes in balances – WHY

• Current Ratio – Current assets vs. current liabilities

• Total Net Assets, how much are they and what are they made up of? (Will be explained more later.)

© 2005 Wipfli LLP


Audit


UNDERSTOOD:

On the Statement of Activities:

• Increases or decreases in total revenue, where and why

• Changes in total expenses, should be proportionate to changes in revenue

• Change in net assets, was it positive or negative and why?

• Any other additional adjustments to this statement?

© 2005 Wipfli LLP


Audit


UNDERSTOOD:

On the Statement of Cash Flows:

• Was cash provided by or used by operating activities?

• How was cash used in investing activities?

• How was cash used in financing activities?

© 2005 Wipfli LLP


Audit

• Footnotes to the financial statements provide the reader with information to further understand your financial information.

• It describes your significant account policies.

• Provides more detailed information to your material account balances.

© 2005 Wipfli LLP


Audit

• Basis of Presentation

 Accrual

 How do you record grant awards?

 Description of Cost Allocation Plan

© 2005 Wipfli LLP


Audit

• Other disclosures:

 Concentration of cash, if cash balances are over $100,000 (the FDIC insured limit)

 Terms of notes receivable and payable

 Related parties

 Subsequent events

 Commitments and contingencies

 Functional classification of expenses

© 2005 Wipfli LLP


Audit


 Retirement plan

 Leases

 Related parties

 Property and equipment

 Descriptions of material balance sheet items

© 2005 Wipfli LLP


Audit


 Revolving loans (housing)

 Notes/mortgages payable

 Changes in accounting policy

 Prior period adjustments

© 2005 Wipfli LLP


Audit

• Schedule of Program Activity has two purposes:

 Fulfills A-133 requirements for disclosing expenses based on CFDA #’s (Catalog of

Federal and Domestic Assistance).

 Breaks down annual activity by individual grant.

© 2005 Wipfli LLP


Audit

Schedule A

Schedule of Program Activity

Year Ended December 31, 2004

T o t a l

$ 3 , 3 4 1, 110

7 0 , 3 0 1

3 2 , 16 8

3 , 4 4 3 , 5 7 9

F E D E R A L P R O G R A M S

D e pa rt m e nt o f A gric ult ure

10 .5 5 8

US D A C hild a nd A dult C a re F o o d P ro gra m

C hild a nd C hild a nd

A dult C a re

F o o d P ro gra m

( 1)

A dult C a re

F o o d P ro gra m

( 2 )

10 .5 5 8

S ubt o t a l

D H H S

9 3 .6 0 0

F ull- Y e a r,

P a rt - D a y

O 6 C H 0 2 0 1/ 2 2

( 2 )

$ 16 0 , 5 7 0

0

0

16 0 , 5 7 0

$ 7 1, 4 12

0

0

7 1, 4 12

$ 2 3 1, 9 8 2

0

0

2 3 1, 9 8 2

$ 3 , 10 9 , 12 8

0

7 8 3 , 6 2 2

3 , 8 9 2 , 7 5 0

R E V E N UE

G ra n t re v e n u e

D o n a t io n s

In k in d c o n t rib u t io n s

T o t a l R e v e n u e

E X P E N S E S

P e rs o n n e l

F rin g e b e n e f it s

O c c u p a n c y

T ra v e l

E q u ip m e n t re p a irs a n d m a in t e n a n c e

F o o d

S u p p lie s

O t h e r

In k in d e xp e n s e s

T o t a l E xp e n s e s

C h a n g e in N e t A s s e t s

N e t a s s e t s - D e c e m b e r 3 1, 2 0 0 3

N E T A S S E T S - D E C E M B E R 3 1, 2 0 0 4

2 , 114 , 3 7 8

3 7 2 , 2 6 5

2 2 0 , 0 15

2 1, 4 2 2

9 1, 3 4 3

18 6 , 5 2 6

117 , 6 5 4

16 9 , 7 3 9

3 2 , 16 8

3 , 3 2 5 , 5 10

118 , 0 6 9

8 6 1, 7 4 0

$ 9 7 9 , 8 0 9

3 6 , 5 9 4

0

0

0

3 9 0

115 , 4 9 1

4 , 8 2 1

3 , 2 7 4

0

16 0 , 5 7 0

0

0

$ 0

10 , 6 3 2

0

0

0

0

4 7 , 8 3 7

5 , 7 4 4

7 , 19 9

0

7 1, 4 12

0

0

$ 0

4 7 , 2 2 6

0

0

0

3 9 0

16 3 , 3 2 8

10 , 5 6 5

10 , 4 7 3

0

2 3 1, 9 8 2

0

0

$ 0

2 , 0 5 2 , 15 2

3 6 7 , 9 18

3 6 3 , 7 8 0

2 1, 4 4 2

6 0 , 8 2 2

2 3 , 19 8

10 7 , 0 8 9

112 , 7 2 7

7 8 3 , 6 2 2

3 , 8 9 2 , 7 5 0

0

0

$ 0

T o t a l

F e de ra l

P ro gra m s

$ 3 , 3 4 1, 110

0

7 8 3 , 6 2 2

4 , 12 4 , 7 3 2

G A A P

A djus t m e nt s

( 3 )

T O T A L

P R O G R A M S

$

(

(

0

0

7 5 1, 4 5 4 )

7 5 1, 4 5 4 )

$ 3 , 3 4 1, 110

0

3 2 , 16 8

3 , 3 7 3 , 2 7 8

A ge nc y

A c t iv it y

( 4 )

$ 0

7 0 , 3 0 1

0

7 0 , 3 0 1

2 , 0 9 9 , 3 7 8

3 6 7 , 9 18

3 6 3 , 7 8 0

2 1, 4 4 2

6 1, 2 12

18 6 , 5 2 6

117 , 6 5 4

12 3 , 2 0 0

7 8 3 , 6 2 2

4 , 12 4 , 7 3 2

0

0

( 14 4 , 8 6 6 )

0

( 3 5 , 14 5 )

0

0

( 13 , 0 4 6 )

( 7 5 1, 4 5 4 )

( 9 4 4 , 5 11)

2 , 0 9 9 , 3 7 8

3 6 7 , 9 18

2 18 , 9 14

2 1, 4 4 2

2 6 , 0 6 7

18 6 , 5 2 6

117 , 6 5 4

110 , 15 4

3 2 , 16 8

3 , 18 0 , 2 2 1

15 , 0 0 0

4 , 3 4 7

1, 10 1

( 2 0 )

6 5 , 2 7 6

0

0

5 9 , 5 8 5

0

14 5 , 2 8 9

0

0

$ 0 $

19 3 , 0 5 7

0

19 3 , 0 5 7 $

19 3 , 0 5 7

0

19 3 , 0 5 7

(

$

7 4 , 9 8 8 )

8 6 1, 7 4 0

7 8 6 , 7 5 2

© 2005 Wipfli LLP


Audit

• Which programs do you subsidize on an annual basis?

• How much reserves do you have on hand and how long will they last if you continue to subsidize?

• Every program should be analyzed to gain information

© 2005 Wipfli LLP


Audit

• How should you use this schedule?

 Review each grant and program to see if it appears reasonable

 Which programs are overspent?

 Which programs are under spent?

 If there is an over expenditure, who is paying for it?

 CSBG $$, Agency $$, private funding sources

© 2005 Wipfli LLP


Audit

• If a grant is completed, did you spend it all?

• Are the individual line items in line within the grant budget?

• If you didn’t spend it all, have you requested carryover?

• Or do you have to return unspent funds?

© 2005 Wipfli LLP


Audit

• Are there any negative expenses? If so why? Is there something that should be reclassified?

• What was the outcome of your agency activity?

• Did you have to use reserves to fund overspent grants?

• Did you add to your unrestricted net asset balance? Or take away?

© 2005 Wipfli LLP


Audit

• What is the balance of your temporarily restricted net assets? And what are they restricted for?

• What is the balance of your unrestricted net assets? And how is it funded? (i.e., property and equipment, receivables, loans, or cash?)

• If either one (temporarily or unrestricted net assets) is in a deficit position, this needs to be addressed ASAP!! Or it could be a finding.

© 2005 Wipfli LLP


Audit


UNDERSTOOD:

• Report on Internal Control over Financial

Reporting and on Compliance and other

Matters

• Report on Compliance with Requirements

Applicable to Each Major Program and

Internal Control over Compliance

Both of these opinions should be reviewed to see if any findings were listed, and if so, are they internal control or compliance

© 2005 Wipfli LLP


Audit


UNDERSTOOD:

• Schedule of Findings and Questioned Costs tells the reader 9 things :

1.

What kind of opinion the overall financial statements received

2.

Whether or not the were reportable conditions related to the overall financial statements

3.

Any noncompliance items

4.

Whether or not the were reportable conditions related to the major programs

© 2005 Wipfli LLP


Audit

• Statement of Findings and Questioned Costs

(continued)

5.

Type of opinion on the major programs

6.

Where or not there were findings on the major programs

7.

What federal programs were tested

8.

Threshold for determining federal programs

9.

Whether or not you are a low risk auditee

© 2005 Wipfli LLP


Audit

• What is the balance of your net assets?

• And what are they restricted for?

• And how is it funded? I.e., property and equipment, receivables, loans, or cash?

• If either any are in a deficit position, this needs to be addressed ASAP!! Or it could be a finding.

© 2005 Wipfli LLP


Audit

• It is important to have a plan for the unrestricted net assets

• Also key to know where they are coming from and what they are used for.

© 2005 Wipfli LLP


Audit

• RULE OF THUMB: Available unrestricted net assets should be

equal to 5-10% of annual revenue

• Organization’s 2005 Revenue:

$17,644,944

• Organization’s 2005 Unrestricted

Net Assets are $175,713

• Recommended balance should be

between $882,250 and $1,764,500

© 2005 Wipfli LLP


Audit

• RULE OF THUMB: Available unrestricted net assets should be

equal to 5-10% of annual revenue

• Organization’s 2005 Revenue

excluding in kind: $4.9 Million

• Organization’s 2005 Unrestricted Net

Assets are $290,016

• Recommended balance should be

between $245,000 and $490,000

© 2005 Wipfli LLP


Audit

• RULE OF THUMB: Available unrestricted

net assets should be equal to 5-10% of annual revenue

• NPO’S 2005 Revenue: $19.2 Million

• NPO’S 2005 Unrestricted Net Assets are

$2,801,987 less property and equipment of

$2,118,395 and loans receivable of $503,629 equal an available net assets balance of

$179,963

• Recommended balance should be between

$960,000 and $1,920,000

© 2005 Wipfli LLP

Topic Five –

Other Miscellaneous Items

A-110 Sec.___.42 Codes of conduct.

• The recipient shall maintain written standards of conduct governing the performance of its employees engaged in the award and administration of contracts. No employee, officer, or agent shall participate in the selection, award, or administration of a contract supported by Federal funds if a real or apparent conflict of interest would be involved.

© 2005 Wipfli LLP

Topic Five –


Conflict of Interest Policy should be a clear written policy to include:

• Full disclosure of financial interest for board and staff

• Conditions and procedures for board or staff to withdraw from any action for which a real or potential conflict of interest might exist

• Transparency and full record keeping of all board or agency decisions and the parties involved

• Policies and procedures for selective “independent” prior review of actions or decisions that may pose potential conflict of interest issues

Avoid situations that advantage board member interests or the appearance of advantage

© 2005 Wipfli LLP

Topic Five –


Approach taken by reviewers this year:

• Increased emphasis on describing interrelated areas of noncompliance among services and systems

• Emphasis on fiscal monitoring using a “risk based” approach using red flags to identify underlying fiscal problems earlier

• Fiscal checklist assesses fiscal health in two major areas:

• Internal Controls

• Governance

© 2005 Wipfli LLP

Topic Five –


Internal Controls/Standards for

Financial Management

• See Checklist attached

© 2005 Wipfli LLP

Topic Five –


Accounting

1. Are the duties of accounting personnel of the organization defined in:

• a. in a written policy manual?

• b. by job description?

• c. Are fidelity bonds in place?

2. Is there a chart for:

• a. the accounting department?

• b. the Agency?

3. Accounting Manual

• a. Does the manual define who has approval authority and any limits of authority.

• b. Provide guidelines for controlling expenditures.

• c. A chart of Accounts

© 2005 Wipfli LLP

Topic Five –


Accounting

(continued)

4. Does the accounting system provide for:

• a. Documenting and recording the non-Federal share and inkind contributions?

• b. Accumulating and recording expenditures by budget cost category and by grant?

• c. Are monthly financial statements prepared?

•

Balance sheet

Revenue/expenditures

Comparison of budget to expenditures

5. Does the organization prepare audited financial statements and have A-133 audit conducted annually?

6. Has the A-133 audit report been submitted in accordance with A-

133 timelines?

© 2005 Wipfli LLP

Topic Five –


Accounting

(continued)

7. Does the organization have a written allocation plan for indirect costs and/or a negotiated cost rate?

8. Are there written procedures maintained for governing the maintenance of accounting records? a.

reconciliation of subsidiaries to control accounts? b.

journal entries are approved and explained with supporting documentation? c.

Approval authority of journal entries? d.

Transactions dated for the date of entry into the system? e.

Accrual accounts provide adequate control over income and expense? f.

Accounting records and valuables are secured in a limited-access area?

© 2005 Wipfli LLP

Topic Five –


Cash Disbursements

1.

Are duties adequately separated? a. To prepare checks? b. To sign checks? c. Reconcile bank accounts? d. Assign G/L account number? e. Have access to cash receipts?

2.

All disbursements are properly supported by evidence of receipt and approval of the related goods and services.

3.

Blank Checks are accounted for and blank checks are not signed in advance.

4.

Un-issued checks kept in a secure area.

5.

Bank accounts are reconciled monthly.

6.

Bank accounts and check signers are authorized by the board of directors or trustee.

7.

Is a check signing machine used?

© 2005 Wipfli LLP

Topic Five –


Cash Disbursements

(continued)

8.

Who has access to this machine?

9.

Are keys for signature plate controlled?

10.

Is a log maintained for the check protector utilized?

11.

Is authority for a check to be signed, delegated to someone not authorized to sign checks?

12.

Have parameters been established by the authorized check signers for such use?

© 2005 Wipfli LLP

Topic Five –


Budgetary Controls

1.

Does the organization have and use an operating budget to control program funds?

2.

Are there budgetary controls in effect to preclude incurring obligations in excess of (e.g., comparison of budget with actual expenditures on a monthly basis): a. total funds available for an award?

b. total funds available for a budget cost category?

© 2005 Wipfli LLP

Topic Five –


Consultants

1.

Are there written policies or consistently followed procedures regarding the use of consultants which detail at a minimum:

(Obtain a copy): a.

Circumstances under which consultants may be used?

b.

Consideration of in-house capabilities to accomplish services before contracting for them?

c.

Requirement for solicitation or bids from several contract sources to establish reasonableness of cost and quality of services to be provided?

d.

Consulting rates, per diem, etc?

2.

Are consultants required to sign "consulting agreements" outlining services to be rendered, duration of engagement, reporting requirements, and pay rates?

© 2005 Wipfli LLP

Topic Five –


Property Management

1.

Are equipment records maintained in accordance with 45 CFR 74.34?

2.

Equipment Records include:

Description

Serial #

Source of funds/grant number

Title vests recipient/federal

Acquisition date

Location/condition

Unit acquisition cost

3.

Physical inventory every two years

4.

Reconciled with equipment records

5.

Maintenance procedures

© 2005 Wipfli LLP

Topic Five –


Purchases

1.

Does the organization have written purchasing procedures?

If not, briefly describe how purchasing activities are handled.

(Obtain a copy of policy or procedure)

2.

Do the purchasing procedures provide for: a. Pre-numbered purchase orders? b. Procedures to insure procurements are competitive prices? c. Invoices are matched with purchase orders and receiving reports?

d. A segregation of duties in that different individuals are responsible for:

1. Purchase

2. receipt of merchandise or services

3. voucher approval

© 2005 Wipfli LLP

Topic Five –


Purchases

(continued)

2.

Do the purchasing procedures provide for: e. Is there a pre set $ threshold for obtaining bids? f. Are there bid procedures in place, approved by the board?

g. Who is authorized to solicit bids, approve bids? Are bid packages retained on file for audit purposes?

3.

Conflict of interest policy for vendors, consultants, etc.

(Board members, purchasers, selecting and awarding officials).

© 2005 Wipfli LLP

Topic Five –


Travel

1.

Does the organization have formal travel policies or consistently followed procedures which, at minimum, state that: a.

Travel charges are reimbursed based on actual costs incurred or by use of per diem and/or mileage rates?

b.

Receipts for lodging and meals are required when reimbursement is based on actual cost incurred?

c.

Per diem rates include reasonable dollar limitations?

Subsistence and lodging rates are comparable to Federal per diem rates and current Federal mileage rates for personal auto use? d.

Commercial transportation costs are incurred at coach fares unless first class is adequately justified? e.

Travel requests are approved prior to occurrence?

f.

Travel expenses reports show purpose of trip?

© 2005 Wipfli LLP

Topic Five –


Credit Cards

1.

Does the organization have internal procedures to control the use of organizational credit cards, access to credit cards, and prohibit any personal expenditures?

2.

Do policies require prior approval of expenditures, documentation of amounts charged and limit the amount and types of expenses that can be incurred.

© 2005 Wipfli LLP

Topic Five –


Program or Grant-Related Income

1.

Does the organization have written policies and procedures relating to program or grant-related income?

(If yes, proceed below) a.

Does the applicant maintain records of the earning, receipt, and disposition of program or grant-related income for which it is accountable? b.

Does the program or grant-related income account identify the type and source of income producing services?

c.

Is a management system in effect that adequately identifies program or grant-related income for each Government project?

d.

Is there a system to properly dispose of program or grant-related income?

e.

Are there any financial statements available issued by an independent accounting firm which identify the source and disposition of program or grant-related income?

© 2005 Wipfli LLP

Topic Five –


Audit Report

1.

Opinion on the financial statements.

2.

Financial statements and notes thereto.

3.

Schedule of expenditures of federal awards.

4.

Report on compliance and internal control over financial reporting based on an audit of financial statements performed in accordance with Government Auditing

Standards.

5.

Report on compliance with requirements applicable to each major program and internal controls over compliance in accordance with OMB Circular A-133.

6.

Schedule of findings and questioned costs, including a summary of the auditor’s results.

© 2005 Wipfli LLP

Topic Five –


Audit Report

(continued)

7.

Summary schedule of prior audit finding.

8.

Data collection form (A-133).

9.

Additional report on immaterial noncompliance and other items not required to be reported according to

A-133 (management letter) or assurance one was not issued.

10.

10. Agency’s response/corrective action plan for each audit issue.

© 2005 Wipfli LLP

Topic Five –


Non-Federal Shares

1.

The good or service is necessary, reasonable, allocable and allowable. (Basic Cost Principles, reference OMB,

A-122).

2.

The good or service supports an activity that is included in the program plan and covered by the Head

Start Program Performance Standards.

3.

The good or service is something on which the program could legally and appropriately spend Federal dollars.

4.

The good or service is something on which the program would normally spend Federal dollars.

© 2005 Wipfli LLP

Topic Five –



(continued)

5.

The service is performed by the donor for the program, not by the program for the recipient (especially important in evaluating allowability of parent volunteer hours). Cash is converted to a good or service. (Cash becomes non-

Federal share when it is spent on an allowable program cost and is recorded as non-Federal share when the goods or services are purchased, not when the cash is received.)

6.

Any Program Income generated and approved for use by the program must be generated and used in the budget year during which it was generated and is not counted as non-Federal share.

© 2005 Wipfli LLP

Topic Five –



(continued)

7.

The amount of non-Federal share generated equals or exceeds the amount specified in the grant application

(usually 20 percent of total obligation authority (TOA), less if approved waiver, more if more was included in the grant proposal and approved in the grant award).

8.

The good or service was provided during the applicable project period.

9.

To the extent possible, non-Federal share is generated and documented proportionate to the expenditure of

Federal funds.

10.

Source documentation exists in sufficient detail to support the claim of the good or service as non-Federal share.

© 2005 Wipfli LLP

Topic Five –



(continued)

11.

Services are valued similarly to the wages and benefits paid for a similar service performed by program or agency staff.

12.

Where no similar service function or job exists in the program or agency, services are valued based on documented wage and benefits rates for similar services performed in the community at large.

13.

Value lies in the service performed, not in the person performing the service.

14.

Goods are valued at a rate consistent with their market value in the service area.

15.

Discounts for goods or services are claimed only if those discounts are not available to the general public.

© 2005 Wipfli LLP

Topic Five –



(continued)

16.

Valuations for donations of space are supported by up-todate, written professional appraisals.

17.

Time spent by parents or other volunteers on fundraising is not claimed as non-Federal share.

18.

Funds used for non-Federal match in one program are not used for match in another program.

19.

Except in special circumstances where allowed by statute, Federal funds cannot be used for match for other

Federal funds.

© 2005 Wipfli LLP

Topic Five –


Vacancies and Impact of Chronic

Under-enrollment

1.

Vacancies are filled in a timely fashion.

2.

Turnover rates are reasonable.

3.

Funds remaining from unfilled vacancies are not routinely used to fund recurring costs.

© 2005 Wipfli LLP

Topic Five –


Payroll/Personnel Internal Controls

1.

Is employment properly authorized?

a. Type of document b. Approved by?

c. Assignment of employee position, cost centered. What is the distribution of the authorization form?

2.

Is separation/termination of employment immediately reported to the payroll department?

a. By who?, increases, decreases, insurance, pension b. Type of document c. Approved by?

d. Who gets a copy?

© 2005 Wipfli LLP

Topic Five –



(continued)

3.

Are changes in payroll properly authorized? a. Withholding, increases, decreases, insurance, pension b. Who authorizes changes?

c. Who authorizes changes to payroll?

d. Once being authorized, how long before changes go into effect.

e. Does someone, other than payroll staff, approve payroll prior to issuances of payroll checks?

4.

Once an employee’s benefit withholding is deducted from their payroll, how long will it be before payment is made to the appropriate vendor?

a. Who makes the payment?

b. Who What type of document is utilized ?

© 2005 Wipfli LLP

Topic Five –



(continued)

5.

Are original time records properly prepared and approved by supervisors?

6.

Are the payroll records regularly compared with the records of the personnel department?

7.

How are payroll checks distributed to employees?

8.

Who reconciles the payroll checking account?

9.

Who prepares the quarterly payroll tax reports, reconciles payroll to quarterly reports to annual W-2 figures?

10.

Who signs the payroll checks? Is it consistent with other authorized check signers?

11.

Did the reviewer obtain a listing from the Personnel department of all employees?

© 2005 Wipfli LLP

Topic Five –



(continued)

12.

Did the reviewer obtain a printout of the bi-weekly (or the Agency basis) payroll, to include, by the pay period: hours worked, gross pay, deductions, net pay amount and the cost center charged?

13.

Did the reviewer obtain a copy of the latest wage & salary comparability study?

© 2005 Wipfli LLP

Topic Five –


Personnel Policies

1.

Are personnel policies established in writing which include as appropriate the following: a. Duties and responsibilities of each employee's position?

b. Qualifications for each position?

c. Salary ranges associated with each job?

d. Promotion policy?

e. Equal employment opportunities?

f. Annual performance appraisals?

g. Types and levels of fringe benefits paid to professionals, nonprofessionals, officers, or governing board members?

h. Drug Free Workplace Act - details regarding employees responsibilities and requirements/consequences.

© 2005 Wipfli LLP

Topic Five –


Personnel Policies

(continued)

2.

Does the organization maintain daily attendance records for hourly employees? (Is this a 'positive' recording system showing actual time and attendance performed?)

3.

Does the agency designate appropriate staff to sign and certify work performed in item 2?

4.

Does the agency have a policy requiring employees to disclose outside employment/consulting?

© 2005 Wipfli LLP

Topic Five –


Documentation for Compensation

1.

Salaries and wages are assigned to appropriate projects and supported by personnel activity reports

(except when a substitute system has been approved in writing by the cognizant agency).

2.

Reports reflecting the distribution of activity of each employee are maintained for all staff members

(professionals and nonprofessionals) whose compensation is charged, in whole or in part, directly to the Head Start or Early Head Start program.

© 2005 Wipfli LLP

Topic Five –



(continued)

3.

To support the allocation of indirect costs, activity distribution reports are also maintained for other employees whose work involves two or more functions or activities if a distribution of their compensation between such functions or activities is needed in the determination of the organization's indirect cost rate(s) (e.g., an employee engaged part-time in indirect cost activities and part-time in a direct function).

4.

Reports reflect an after-the-fact determination of the actual activity of each employee. [Note: Budget estimates determined before the services are performed do not qualify as support for charges to awards.]

5.

Reports account for the total activity for which employees are compensated and which is required in fulfillment of their obligations to the organization.

© 2005 Wipfli LLP

Topic Five –



(continued)

6.

Reports are prepared at least monthly and coincide with one or more pay periods.

7.

Charges for the salaries and wages of nonprofessional employees (i.e., non-exempt employees) are supported by records indicating the total number of hours worked each day maintained in conformance with Department of Labor regulations implementing the Fair Labor Standards Act

(29 CFR Part 516).

8.

Salaries and wages of employees used in meeting cost sharing or matching requirements on awards are supported in the same manner as salaries and wages claimed for reimbursement from ACF.

© 2005 Wipfli LLP

Topic Five –


Wage Comparability

1.

A thorough, up-to-date wage comparability survey supports the grantee agency’s wage and salary structure.

2.

The wage comparability survey includes relevant wage data from the grantee’s service area, neighboring areas and/or other nearby areas with similar labor market characteristics.

3.

Wage comparability data from outside the grantee’s service area (e.g., across a state or even across a region) is viewed in the context of the labor markets, cost of living, etc. of those areas in relation to those same factors in the grantee’s service area.

© 2005 Wipfli LLP

Topic Five –



(continued)

4.

The wage comparability survey includes appropriate comparisons (e.g., public school teachers with bachelor’s degrees are not used to establish comparability for Head

Start teachers with CDAs).

5.

Comparability data is reported as hourly wages to ensure accurate comparisons.

6.

An adequate number of cases is used to establish comparability for most grades, classes or levels in the classification system.

7.

The wage comparability study is current or has been updated within three to five years.

8.

The wage comparability data reflects compensation in other publicly funded human services programs, or at least a reasonable mix of public and private sector human services salaries.

© 2005 Wipfli LLP

Topic Five –



(continued)

9.

The wage comparability studies considers factors like the type of organization, scope of responsibility, program size and budget, and qualifications (i.e., level of education and experience) of job incumbents.

10.

Final wage decisions include consideration of comparability of salary, benefits and other perks.

11.

The agency’s can articulate the rationale for its compensation decisions.

12.

Salaries and wages are not higher than those paid to individuals providing substantially similar services in the area.

© 2005 Wipfli LLP

Topic Five –


Wage and Salary Administration

1.

Salaries and wages paid and total personnel costs are consistent with what the grantee agency proposed and was approved in its grant application.

2.

Salaries and wages paid are consistent with the grantee agency’s salary scale.

3.

Salaries and wages are reasonable taking into account wage comparability information, the responsibilities of the position, and the qualifications of the employee.

4.

Each position is classified as exempt or non-exempt as defined by the Fair Labor Standards Act.

5.

Non-exempt employees receive properly calculated overtime pay.

6.

Non-exempt employees are paid for overtime, not awarded "comp time."

© 2005 Wipfli LLP

Topic Five –



(continued)

7.

All employees receive at least minimum wage.

8.

Less than twelve month employees whose salaries are spread over a year receive at least minimum wage for each hour worked during each pay period.

9.

A position classification system groups positions with similar qualifications and levels of responsibility for wage and salary administration purposes.

10.

The position classification system is pegged to the agency’s or program’s salary scale.

11.

Position classifications and the salary scale ensure fair and consistent wage and salary administration.

© 2005 Wipfli LLP

Topic Five –



(continued)

12.

Preference in awarding salary increases is granted to classroom teachers and staff who obtain additional training or education related to their responsibilities as employees of a Head Start program.

13.

Criteria for incentive pay are clearly defined and pay not related to performance (i.e., bonuses) is not awarded.

© 2005 Wipfli LLP

Topic Five –


Compensation Policies

1.

Agency policies and procedures clearly define fringe benefits.

2.

Agency policies and procedures clearly define provisions for performance awards (e.g., incentive pay, performancebased compensation, and non-cash awards), if applicable.

3.

Compensation policies are applied consistently across the organization.

© 2005 Wipfli LLP

Topic Five –


Compensation Policies

(continued)

4.

When the Federal government grants funds specifically for the improvement of salary and wages those increases are granted to Head Start personnel regardless of whether or not funds are available to provide similar increases to employees who perform non-Head Start services.

5.

Written policies include position descriptions addressing roles and responsibilities, relevant qualifications, salary range, and employee benefits.

© 2005 Wipfli LLP

Topic Five –


Compensation Procedures

1.

Employees are actually paid what is reported.

2.

Head Start employees received across the board COLA increases at least at the percentage specified in the funding guidance from ACF for the current program year.

3.

In cases where employees did not receive the prescribed

COLA, an up-to-date, relevant wage comparability survey reveals that providing a cost-of-living increase would result in a salary exceeding comparability.

4.

If the COLA increase was not reflected in the initial refunding, retroactive COLA increases were granted or an across the board increase of at least the COLA requirement was given at the beginning of the program year.

© 2005 Wipfli LLP

Topic Five –


Compensation Procedures

(continued)

5.

Funds specifically allocated and awarded for improvements in salaries and fringe benefits are used exclusively for that purpose unless some deviation from that requirement was requested and approved; documentation exists regarding why the requirement was not addressed.

6.

Time sheets are signed by employee or by a responsible supervisory official who has first hand knowledge of the activities performed by the employee.

7.

Time sheets are consistent with actual pay.

© 2005 Wipfli LLP

Topic Five –


Administrative Cost (15%)

1.

The salaries and benefits of employees engaged in the management functions of accounting, budgeting, coordination, direction, and planning, as well as the management of payroll, personnel, property and purchasing and those who support their work (e.g., clerks, secretaries) are included in administrative costs.

2.

Administrative personnel costs include the janitor/custodian for administrative office space.

3.

Administrative personnel costs include costs associated with volunteers carrying out administrative functions.

© 2005 Wipfli LLP

Topic Five –


Taxes, Premiums, Contributions

1.

All employee withholding and other taxes are paid on a timely basis.

2.

All premiums are paid prior to their due dates.

3.

Employer contributions to pension plans are made on a timely basis.

4.

Dollars withheld from employees’ pay checks are used only to pay the taxes and premiums and make the contributions for which they were intended.

5.

IRS reports have been properly completed and filed with the IRS (IRS 990, 941 and 1099.

© 2005 Wipfli LLP

Topic Five –


Benefits Administration

1.

Fringe benefits are applied consistently to all employees in a particular classification.

2.

Agency benefits include both health insurance and retirement or pension programs.

3.

Organization-furnished vehicles are not available to employees for personal use.

4.

Use of agency credit cards by staff is tightly controlled.

5.

Agency credit cards are never used by employees to cover personal expenses.

© 2005 Wipfli LLP

Topic Five –



(continued)

6.

Entertainment costs are incurred only as incidental expenses in conjunction with other activities contributing to employee morale, health and welfare, professional development, community involvement or service, employee recognition, and other program related functions.

7.

Leave obligations are calculated, potential liability is assessed, and leave recorded on the books is charged to the appropriate grant.

8.

When leave accruals from grant year to grant year are allowed, year end and other periodic entries are made to financial statements for accrued leave.

© 2005 Wipfli LLP

Topic Five –



(continued)

Fraud may be perpetrated through payroll by padding the earnings of employees, by overfooting the payroll records, by padding the payroll with fictitious employees, by leaving exemployees on the payroll, by keeping unclaimed wages, and by failing to record deductions from employees’ wages.

Payroll procedures involve hiring, keeping a record for each employee of the time worked and not worked, computing the periodic pay, individually and in total. Payroll manipulation may be accomplished by one person alone, if precautions are not taken. Even with proper safeguards, the collusion of two or more employees makes fraud comparatively easy.

© 2005 Wipfli LLP

Topic Five –


• Many organizations, including NPO’s are adopting less expensive public company reforms

• Including:

• Implementing audit committee oversight of auditors

• Implement restrictions on executive compensation

• Development of ethic codes

• Approval of non-audit services by the board

© 2005 Wipfli LLP

Topic Five –


• Be sure to have at least one financially savvy member on the board and be sure that they are on the audit committee

• Strengthen internal controls

© 2005 Wipfli LLP

Topic Five –


• Make CEO, ED, and other executives more accountable

• Board should be involved in the audit, have at least one board member attend the exit conference

• Board presentations from the auditors, both with and without management present

© 2005 Wipfli LLP

Summary

• Discuss with your board what kind of information they want but keep it simple.

• Use technology to do this work for you, don’t recreate the wheel.

• Analyze your net assets. Know what is temporarily restricted and unrestricted.

• Remember only donors or funding agencies can restrict your assets. Boards can only designate net assets.

• Be familiar with your tax return. It tells a lot about your organization, and is public information.

• While you are a nonprofit organization, you are also a business and you need to manage your organization as a business.

• Grants are competitive and the organizations that are the most efficient and effective will prevail.

• You are increasing being asked to do more with less, both dollars and staff, and you need to be able to respond to this challenge.

© 2005 Wipfli LLP

Concluding Thoughts…

Questions???

© 2005 Wipfli LLP

Financial Analysis for NPOs

NASCSP Monitoring –

Principles & Practices

Training

Meet the trainer

Analysis of this type allows you to be proactive not reactive !!

• A true budget reflects anticipated activity during certain times of the year, not equally throughout the year

Internal Controls/Standards for

Financial Management

• See Checklist attached

Accounting

Questions???

Related documents

Products

Support

Financial Analysis for NPOs

NASCSP Monitoring –

Principles & Practices

Training

Meet the trainer

Analysis of this type allows you to be proactive not reactive !!

• A true budget reflects anticipated activity during certain times of the year, not equally throughout the year

Internal Controls/Standards for

Financial Management

• See Checklist attached

Accounting

Questions???

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