Use Your Financial Statements to Increase
Nonprofit Sustainability
Diaper Banks in America Conference
October 30th, 2015
 Top Ten Board/Finance Committee Reporting Mistakes
 Speed Reading Financial Statements
 Statement of Financial Position (Balance Sheet)
 Statement of Activities (Income Statement, Statement of
Revenues, Expenses, and Changes in Net Assets)
 Speed Reading Form 990
 Q&A
3
Top Ten Nonprofit Reporting Mistakes
1) We have no clue what our Board members
know…or don’t know…
FUN Tool:
Quick Assessment
4
FUN Tool:
Know Your People
5
6
Top Ten Nonprofit Reporting Mistakes
1) We have no clue what our Board members
know…or don’t know…
2) We provide inadequate or no training on
financial reports and related concepts …
FUN Tool:
Board Orientation
Checklist
7
FUN Tool:
Board Orientation
Checklist
8
9
FUN
Unlock Financial Literacy for Nonprofit Board Members to
Deliver Mission & Protect Assets
www.washingtonnonprofits.org/fun
Finance Unlocked for Nonprofits
10
6 Short Videos
6 Kits
BINGO card + Summary
11
12
Top Ten Nonprofit Reporting Mistakes
1) We have no clue what our Board members
know…or don’t know…
2) We provide inadequate or no training on
financial reports and related concepts …
3) We set a tone that de-prioritizes the importance
of our organization’s finances…
4) Our finance presentation is always … exactly …
the … same …
5) We constantly use accounting terminology,
jargon, and acronyms …
13
Top Ten Nonprofit Reporting Mistakes
6) Way too much information …
7) Not enough information …
8) Our reports are a moving target …
9) We use dashboards … the wrong way …
10)We rely on these reports but don’t understand
the system that produces them …
The Statement of Financial Position (or Balance
Sheet) summarizes what is owned and owed at a
point in time
2011
Assets &
liabilities differ
little from those
of for-profit
entities
Current Assets
Cash and cash equivalents
Investments
Accounts receivable
Grants receivable
Promises to give
Prepaids and deposits
2010
$ 4,298,432 $ 5,160,945
3,927,845
4,117,419
48,321
57,499
84,673
105,884
2,680,466
1,421,444
12,843
17,433
Total Current Assets 11,052,580 10,880,624
478,393
428,393
2,449,721
1,891,757
2,914,619
3,489,587
Land
Building and Equipment, net
Endowment Investments
$ 16,895,313 $ 16,690,361
LIABILITIES AND NET ASSETS
The biggest
difference on the
Statement of
Financial Position
is the Net Assets
section
Current Liabilities
Accounts payable
Accrued liabilities
Line of credit
Current portion of long-term debt
$
Total Current Liabilities
Long-term Debt, less current portion above
993,201 $
249,688
300,000
26,617
1,569,506
Total Liabilities
777,307
2,346,813
Total Net Assets
(111,032)
11,546,402
3,113,130
14,548,500
598,313
242,205
27,584
868,102
804,891
1,672,993
Net Assets
Unrestricted
Temporarily restricted
Permanently restricted
197,096
11,732,142
3,088,130
15,017,368
$ 16,895,313 $ 16,690,361
The most significant difference in net assets
between for-profits and not-for-profits is the
concept of restrictions
Not-for-profit net assets are classified into one of the following
restriction categories:
 Unrestricted – no donor imposed stipulations, but may include
board-designated funds
 Temporarily restricted – those assets with a time and/or purpose
restriction as stipulated by a donor
 Permanently restricted – the corpus of these gifts are maintained in
perpetuity with income to support general operations or a specific
purpose
Non-financial executives should monitor four
important numbers/ratios related to the
Statement of Financial Position
Liquidity
Is the Current Ratio (= current
assets/current liabilities) greater than 1?
Trends
Are there any unusual or unexpected
trends in the balances?
Are you meeting financial reserve targets?
Debt
Is debt activity consistent with expectations?
Is there sufficient access to capital to cover
emergencies?
Unrestricted Net Assets
Are there enough unrestricted, liquid net assets,
to protect the organization in the event of an
economic downturn or crisis?
Statements of Activities prepared for internal use
often look very similar to for-profit Income
Statements
Unaudited – Internal Use Only
Support &
Revenue
Expenses:
Excess
(Deficit):
Net
Income/
(Loss)
YTD Actual
Support
Contributions
Foundation grants - XXX Foundation
Foundation grants - other
Government grants
Special events
Subtotal
$ 1,285,493
150,000
258,495
209,472
213,954
2,117,414
$ 1,188,701
750,000
262,500
246,431
206,250
2,653,882
Subtotal
297,594
94,796
16,749
(189,574)
6,743
226,308
Total Support and Revenue
Total Expenses
Revenue
Admissions
Membership fees
Interest income
Gain (loss) on investments
Other revenue
Expenses
Salaries, benefits & taxes
Occupancy (rent, utilities)
Program expenses
Professional fees
Supplies
Printing
Insurance
Fundraising
Interest
Miscellaneous
Depreciation
Excess (Deficit)
YTD Budget
Budget
Variance $
$
Budget
Variance %
Annual
2011 Budget
96,792
(600,000)
(4,005)
(36,959)
7,704
(536,468)
8%
-80%
-2%
-15%
4%
-85%
$ 1,584,935
1,000,000
350,000
328,574
275,000
3,538,509
283,196
93,750
17,250
26,250
4,125
424,571
14,399
1,046
(501)
(215,824)
2,618
(198,263)
5%
1%
-3%
-822%
63%
-755%
377,594
125,000
23,000
35,000
5,500
566,094
2,343,722
3,078,452
(734,730)
-840%
4,104,603
$ 2,007,642
219,874
70,813
284,773
57,493
68,321
13,855
42,947
18,654
6,843
21,375
2,812,590
$ 2,180,732
249,107
128,110
112,500
62,048
73,725
12,632
40,744
18,671
7,125
21,375
2,906,768
$ (173,090)
(29,233)
(57,297)
172,273
(4,555)
(5,404)
1,223
2,203
(17)
(282)
(94,178)
-8%
-12%
-45%
153%
-7%
-7%
10%
5%
0%
-4%
0%
85%
$ 2,907,642
332,143
170,813
150,000
82,730
98,300
16,843
54,325
24,895
9,500
28,500
3,875,691
$ (468,868)
$ 171,684
$ (640,552)
-925%
$ 228,912
However, Statements of Activities prepared for
external use probably follow the following format
Unrestricted
Support &
Revenue:
with donor
restrictions
identified
Contributions
$ 1,200,999
Foundation grants
Special events
Total Public Support
2010
Restricted
Restricted
Total
Total
$
59,494
$
25,000
190,070
23,884
1,799,564
83,378
$ 1,285,493
$ 1,384,935
408,495
977,322
213,954
273,433
1,907,942
2,635,690
297,594
297,594
377,594
94,796
94,796
83,992
209,472
209,472
328,574
16,749
16,749
24,844
(189,574)
(189,574)
32,822
25,000
Revenue
Admissions
Interest income
Gain (loss) on investments
Other revenue
6,743
Total Revenue
6,743
5,534
435,780
-
-
435,780
853,360
35,000
(35,000)
-
-
-
234,118
(234,118)
-
-
-
2,504,462
(185,740)
25,000
2,343,722
3,489,050
$ 2,306,324
$ 2,306,324
$ 2,907,642
281,259
281,259
309,385
Net Assets Released from Restrictions
Time restrictions
Purpose restrictions
Total Public Support and Other Revenues
Change in
Net Assets/
Net Income
2011
408,495
Government grants
grouped
functionally
Permanently
Public Support and Other Revenues
Public Support
Membership fees
Expenses:
Temporarily
Expenses
Program expenses
Management and general
Fundraising
225,007
Total Expenses
Total Change in Net Assets
2,812,590
$ (308,128)
$ (185,740)
$
25,000
225,007
216,007
2,812,590
$ (468,868)
3,433,034
$ 56,016
Not-for-profits have two key sources of income:
revenue and support
Revenue
Support
Includes resources that resulted
from an exchange transaction,
such as:
Includes resources for which no
services or goods were
received, such as:
 Program or service fees
 Grants
 Government or other grants
 Contributions (unique to nonprofits)
 Ticket sales or event income
 Investment income
 In-kind donations (unique to
non-profits)
The Statement of Activities (or Income Statement)
shows the results of the organization’s financial
operations for a period of time
Not-for-profits have many of the same expense categories as other
organizations do …
Common Expenses
 Wages/salaries (generally the
largest expense)
 Operating expenses such as
rent, postage, telephone,
travel, etc.
 Marketing/development
expenses such as printing,
advertising, event-related costs
However, not-for-profits
are required to show
expenses on the face of the
financial statements or in
the footnotes based on the
functional classification:
Program Services,
Administration or
Fundraising
When reviewing the Statements of Activities
you should monitor these four critical areas
Budget vs. Actual
Trends
How is the organization doing relative to
the budget? If there are large variances,
how is management addressing them?
When reviewing budgeted expenses, are
there any that are rising more rapidly than
the corresponding revenue or support
source?
Revenue & Support
The Bottom Line
Is the organization overly dependent on
a single revenue or support source?
Does management have a contingency
plan to address an unexpected drop in
income?
Is the bottom line consistent with
expectations, both overall and by restricted
net asset class?
Your review of the financials should include all
attachments, including footnotes and, if
audited, the auditor’s opinion
Auditor’s Opinion
Did you receive a clean audit opinion?
Were there any significant deficiencies
or material weaknesses?
Donor’s Perspective
When your financial statements,
including the footnotes, are viewed
from a donor’s perspective, do they
present a compelling story?
Footnotes
Does anything disclosed in the footnotes
alter your perception of the organization’s
financial health?
Other Users’ Perspectives
Are you meeting grant, loan and other legal
covenants?
The IRS Form 990 should also be a part of your
financial review process
IRS Audit
Governance
 Time consuming
 Exempt purpose (Mission)
 Penalties
 Board independence
 Revoke exempt status
 Policies and procedures
Non-Financial
Monitoring
 Accomplishments (60 families served)
Process is like a financial audit (and more)
 Volunteers (295 people & 900 hours)
Suggests best practices (rebuttable rules)
 Areas served (King & Pierce counties)
Are you maintaining your exempt status?
Depending on your gross receipts and assets,
there are several different Form 990s available
• If organization has gross receipts of $50,000 or less, it files Form 990-N
Electronic Notice (e-postcard)
• Also, larger “small” organizations can file the simpler Form 990-EZ if gross
receipts are between $50,000 and $200,000 and if assets are less than
$500,000.
• Larger organizations file the full Form 990
Your return is due 4 ½ months after your year-end.
Two extensions possible to 10 ½ months.
If you have revenues unrelated to your
organization’s exempt purpose, you may also
need to file a 990-T
• Organizations with $1,000 or more of gross unrelated business
income must file a Form 990-T
• Organizations frequently overlook UBTI sources such as:
– Advertising
– Parking fees
– Subleased space
• UBTI is reported on page 1 and page 5 of new 990
• IRS is looking for continuing losses that are unreasonable in a
business setting, or due to the over-allocation of expenses
• Applies to 990, 990-EZ and 990-N filers
You can improve your ability to speed-read a
Form 990 by starting with four key pages
Snap Shot – Page 1
Basic information, summary of
activities, governance, revenue,
expenses , assets, liabilities and nets
assets.
Checklist of Required Schedules – Page 3
Did you file a complete and accurate
return? Most charities have
contributors, fundraising, grants, noncash gifts and other disclosures.
Accomplishments – Page 2
Mission, new programs, three largest
programs, number of patients served,
expenses , grants & revenue by program.
Governance, Mgmt & Disclosure – Page 6
Board independence
Written policies
Governance documents made available
Next, review your compliance requirements …
 Jeopardizing exemption (political activity/personal benefit)
 Substantiation of contributions ($75/$250)
 Public disclosure (1023, 990, 990-T)
 Filing & extension due dates ($20/$10,000)($100/$50K)
 Recordkeeping (what & how long?)
 Compliance tests (public support %)
Page 5 of the 990 has filing and tax compliance information
Resource - IRS Stay Exempt
… and whether you pass the IRS tests for
maintaining tax exempt status
Proper Organization
Do your Articles state your exempt
purpose and operation/termination
requirements? Have you updated
changes?
Commerciality
Do you operate more like a commercial
business than a charity, with direct
counterparts, retail pricing, advertising,
business hours, no volunteers and no
contributions?
Broad Public Support
Did you get more than 33% of your
support from the public? (Look at
Schedule A)
Community Benefit
What is your program expense %?
Do you serve the public and not private
interests?
Are your programs real and substantial?
Recognizing red flags ahead of time can limit
your exposure to a potential IRS audit
Incomplete Return
Basic information missing, return not
signed, no board roster and/or no
fundraising expenses listed.
Checklist of Required Schedules
Completed checklist but did not
complete required schedules for
contributors, fundraising, grants, noncash gifts and other disclosure.
Accomplishments
Missing three largest programs, program
expenses , grants & revenue by program.
Governance, Mgmt & Disclosure
For example:
• No independent board members
• No written policies
• ED salary is 51% of all expenses
Want more information about issues affecting notfor-profits? Sign up for On Board, an e-newsletter
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31
We understand the value a strong Board
can bring to a not-for-profit organization …
Erin Welch, CPA – Partner, Jacobson Jarvis
 Over 14 years of experience serving for not-for-profits
 Works with clients through the audit process to improve efficiencies and reduce
risks
 Focused on helping clients leverage financial data to strengthen missionbuilding efforts, including use of dashboards
 Conducts financial health assessments for all types of organizations
 Facilitates financial training workshops for board members and other not-forprofit leaders
Erin Welch
erin@jjco.com
www.jjco.com