Welcome to the Board!
(and did we mention your Fiduciary
Responsibility?)
Fiduciary Responsibility and Financial Reporting
An Overview
Topics for our discussion
• The basic financial statements and tax filings
• Fiduciary responsibilities: cash management,
investments, spending policies
• Best practice for policies and procedures
• Typical organization structure
• Board structure and governance – monitoring asset
restrictions
• Management’s responsibility- establishing a “tone” of
compliance
• Preventing fraud
Basic Financial Statements and Tax Filings
• Statement of Financial Position (a balance sheet)
• Statement of Activities (profit and loss)
• Statement of Cash Flows (what generates cash
and how it gets used)
• Notes to the Financial Statements (disclosures
and “the story behind the numbers”)
• Federal tax filing on Form 990
Standard Audit Report
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors of
ABC Organization
Report on the Financial Statements
We have audited the accompanying financial statements of ABC Organization (a nonprofit organization), which comprise the statement of financial position
as of June 30, 20X1, and the related statements of activities, functional expenses, and cash flows for the year then ended and the related notes to the
financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally
accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected
depend on the auditors’ judgment, including the assessment of the risk of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the Organization’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Organization’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of
the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Standard Audit Report Continued
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Organization as of June 30,
20X1, and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United
States of America.
Report on Summarized Comparative Information
We have previously audited the Organization’s 20X0 financial statements, and our report dated October 2, 20X1, expressed an unmodified opinion on those
audited financial statements. In our opinion, the summarized comparative information presented herein as of and for the year ended June 30, 20X0, is
consistent, in all material respects, with the audited financial statements from which it has been derived.
City, State
Report Date
Statement of Financial Position
20X1
20X0
LIABILITIES
20X1
20X0
ASSETS
Cash and cash equivalents
$ 29,907
$ 15,655
Unconditional promises to give
198,188
190,304
Accounts receivable
4,635
1,355
Prepaid expenses
6,402
8,845
64,875
13,282
648,410
664,342
$ 952,417
$ 893,783
Long-term investments
Property and equipment
TOTAL ASSETS
Accounts payable
$ 6,291
$ 3,445
Accrued expenses
4,284
8,145
Notes payable
79,991
85,930
TOTAL LIABILITIES
90,566
97,520
Unrestricted
362,857
356,166
Temporarily restricted
492,125
435,932
Permanently restricted
6,869
4,165
861,851
796,263
$ 952,417
$ 893,783
NET ASSETS
TOTAL NET ASSETS
TOTAL LIABILITIES AND NET ASSETS
Statement of Activities
Unrestricted
Revenue and support
Government contracts
Contributions and special events
Grants
Services and fees
Other revenues
$
Net assets released from restrictions
Total revenue and support
Expense
Program
Management and general
Fundraising
Total expense
Change in net assets from operations
Investment income, net
Change in net assets
Net assets, beginning of year
Net assets, end of year
$
Temporarily
Restricted
1,265,431
400,301
53,879
21,652
5,674
$
Permanently
Restricted
64,823
13,751
-
$
Total
20X1
20X0
2,704
-
$ 1,265,431
467,828
67,630
21,652
5,674
$ 1,062,785
362,791
65,430
26,753
4,568
23,756
1,770,693
(23,756)
54,818
2,704
1,828,215
1,522,327
1,230,421
467,935
82,364
1,780,720
-
-
1,230,421
467,935
82,364
1,780,720
943,376
443,991
79,212
1,466,579
(10,027)
54,818
2,704
47,495
55,748
16,718
1,375
-
18,093
15,314
6,691
56,193
2,704
65,588
71,062
356,166
435,932
4,165
796,263
725,201
6,869
$ 861,851
$ 796,263
362,857
$
492,125
$
Federal Form 990
• Informational form for Tax Exempt Entities
• Has been significantly revamped in recent years
• Reports on financial results and compliance with
the organization’s mission
• Contains a section that covers the organization
policies
• Is subject to public inspection
State Level Reporting
• Varies by state
• Often supervised by State Attorney General,
Secretary of State, or Consumer affairs
• May require additional filings specific to that
state
• May require a copy of Form 990
• Filings also may be publicly available
Fiduciary Responsibilities
• Cash – that it gets spent toward the mission of
the organization on items that are approved,
legal, appropriate and for reasonable amounts
• Investments – that invested funds are properly
managed to provide a return for the organization
and that the types of investments are appropriate
• Liabilities – that liabilities are incurred for
approved expenditures or long term financing
Fiduciary Responsibilities
• Net assets – organized and presented by type of
restriction
• Unrestricted (including Board designated)
• Temporarily Restricted – restriction based on
time period or specific purpose
• Permanently Restricted – restriction established
by donor, corpus not available for general use,
often may be invested
Supporting Policies and Procedures
• Employee manuals that outline approved
policy
• Multi – level approval process for
expenditures – department heads or senior
staff
• Regular monthly financial reporting and
comparison to budgets with explanation of
variances
Typical Organization Structure
• Board of Directors with Committee Structure
– Finance committee/Audit Committee/Investment
Committee
•
•
•
•
Executive Director
Finance Director (or Controller/Bookkeeper)
Accounting staff
Program Directors
Board Structure and Governance
• Structure based on size of organization
• Look for specific expertise – legal, accounting,
human resources
• Form 990 requirement for Board review and
approval
• Finance Committee
– most common, reviews financial results, may function
as audit and investment committee if not practical to
have separate committee
Board Structure and Governance
• Audit committee
– will oversee relationship with outside auditors and
may include members who are not on the Board
itself
– Will review and approve outside auditors’ report
on financial statements
– Many larger organizations are establishing audit
committees
Board Structure and Governance
• Investment Committee
– Oversees investment portfolio
– Hires and oversees work of professional money
managers
– Monitors investment results
– Makes decision on types of investments
– Monitors compliance with asset restrictions
– Fair value – Level 1, 2 and 3 type assets
Management’s Responsibilities
• Executive Director – “the buck stops here”,
establish a “tone” of compliance for the
organization
• Finance Director – regular financial reporting
process and day to day oversight
• Program Directors – budget monitoring, use of
staff resources
Preventing Fraud
•
•
•
•
•
•
•
•
Determine what creates opportunities
Identify common types of fraud
Outline best practices for prevention
Set a tone of the organization
Regular monitoring of policies
Monitor related parties
Segregation of duties
Question variances
Thank You!
Howard Cheney, CPA
hcheney@mbkcpa.com
(413) 322-3491
Melyssa Brown, CPA
mbrown@mbkcpa.com
(413) 322-3484