Board Leadership Seminar:
The Roles of the Finance and
Audit Committees
October 13, 2015
Presented by: Nancy J. Snyder, CPA
Recent changes and where we
are now…
New York Nonprofit Revitalization Act
effective 7/1/2014
(www.charitiesnys.com/nonprofit_rev_act.jsp)
Executive Order #38, June 30, 2014 fiscal
year ends are first filers-excluding Nassau
County
James Sheehan, Chief Charities
Bureau(former NYS Medicaid Inspector
General)
2
NPRA
Audit, review and compilation requirements
revenue thresholds changed

7/1/14-6/30/17
 Up to $250k - no audit or review required
 Between $250k and $500k - CPA review required
 More than $500k - CPA audit required

7/1/17-6/30/21
 Up to $250k - no audit or review required
 Between $250k and $750k - CPA review required
 More than $750k - CPA audit required
3
NPRA (Continued)
Audit, review and compilation requirements
revenue thresholds changed (Continued)

After 7/1/21
 Up to $250k - No audit or review required
 Between $250k and $1M - CPA review required
 More than $1M – CPA audit required
4
NPRA (Continued)
Every NFP must comply with NPRA
Conflicts of Interest for directors



Disclose prior to election
Any director with an interest in a related party
transaction must disclose material facts to board
or AC
No director with an interest in a related party
transaction may be present in deliberation or
voting
5
NPRA (Continued)
Conflicts of Interest (Continued)


No director may be involved in related party
transaction in which the director has an interest
Each director must submit to the secretary at the
time of election, and annually thereafter a signed
written statement identifying:
 Any entity which the director is an O, D, T, M, O, E with
which the organization has a relationship, and
 Any transaction in which organization is a participant and
in which the director might have a conflicting interest
6
NPRA (Continued)
Conflicts of Interest (Continued)


Secretary provides copies to AC Chair or chair of
board, if AC is full board
Bylaws should reflect the policy-if not updated
might need to consider updating
7
NPRA (Continued)
Conflicts of interest for officers/key
employees




Must disclose COI’s and related party transactions
Any officer or key employee with an interest in a
related party transaction must disclose material
facts to board or AC
Conflicted officer or key employee cannot be
present or participate in deliberation or vote
Persons who will benefit from compensation
decisions may be present or participate in board
deliberation or vote
8
NPRA (Continued)
Whistleblower policy



Any NFP with 20 or more employees and $1M of
revenue
Provide for protection against retaliation
Policy must include:
 Procedures for reporting
 Administrator of policy report to AC or board
 Copy of policy be distributed to O, E and volunteers who
provide substantial services to NFP
9
NPRA (Continued)
For any NFP required to have an audit, board
or AC oversight of independent audit:



Oversee the accounting and financial reporting
and the audit of f/s
Annually retaining or renewing retention of
independent auditors
Reviewing results of audit and m/l with auditors
10
NPRA (Continued)
In addition, for NFP’s with revenue over $1M,
AC must also:


Review audit scope and plan prior to audit
commencing
Upon completion of the audit must review and
discuss the following with the auditors:
 Any material weaknesses in internal controls identified
 Any restrictions on the scope of the auditor’s activities
 Any significant disagreements between auditors and mgmnt
 Annually consider performance of auditors
 If done by AC, AC must report to the board
11
NPRA (Continued)
The board or AC is responsible for
overseeing the implementation/compliance
with COI policy or whistleblower policy
adopted by the NFP
If NFP controls a group of corporations, the
AC of controlling NFP may perform duties for
controlled corporations
Only independent directors may participate in
deliberations/voting related to above matters
12
NPRA (Continued)
Related party/COI transactions:

Board must:
 Consider alternative transactions
 Approve transaction by not less than a majority vote of
present members
 Contemporaneously document in writing basis for board
approval, including consideration of alternative
transactions
 AG has power to unwind if organization is in violation of
requirements
13
NPRA (Continued)
Independent directors:

Directors that are not, or have not in the last 3
years, been employed by or received more than
$10,000 in compensation from the NFP or any
affiliate, and have not had a substantial interst in
any entity that made payments to or received
payments from the NFP or affiliates exceeding the
lesser of $25k or 2% of the entities gross revenue
and whose relatives have also been free of such
conflicts for the past 3 years.
14
NPRA (Continued)
Related party is defined as any D, O, or KE of
the organization or an affiliated organization,
any relative of such individual, and any entity
in which any such individual or relative has a
35% or greater ownership or beneficial
interest or, in the case of a partnership or
professional corporation, a direct or indirect
ownership interest in excess of 5%.
15
EO No. 38
Covered provider




Not a state, county or local governmental unit,
tribal nation or subdivision/subsidiary thereof, and
Provided program services during the covered
reporting period(CRP) and
Average state funds/state authorized
payments(SAP) for CRP and prior year equals or
exceeds $500k
Average state funds/SAP exceed 30% of in-state
revenue for CRP and prior year
16
EO No. 38
Compensation

Covered executive
 Compensated D, T, MP, O or KE whose salary and/or benefits,
in whole or in part, are administrative expenses, and executive
compensation exceeds $199k(max of 10 EE’s)
 EC includes all cash and noncash or benefits excluding
mandated benefits and other benefits consistent with other
EE’s
 Waiver must be obtained if CP utilized SF/SAP of more than
$199k
 EC from all sources may exceed $199k if remains below 75th
percentile of comparables and was board approved
17
EO No. 38
Administrative Expenses Limitation



Unless a waiver is granted, administrative
expenses must not exceed 25% for CRP
beginning between 7/1/13 and 6/30/14(1/1/1412/31/14), decreasing 5% each year for the
following 2 CRP’s and remaining at 15%
Regulations specify definitions and criteria for
determination as program and administrative
expenses
http://executiveorder38.ny.gov
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Overall Duties of Board Members
in New York State
 Care
Good faith & degree of diligence
 Monitor finances either directly or through
standing committees

 Loyalty
Conflict of Interest Policy
 Document any transactions involving
conflicts

Obedience
19
The Current Environment
Single audit revisions/expanded testing-2015
FASB proposed changes to NPO Financial
reporting
20
The Form 990
12 page core form with 16 schedules of
detail behind
Not all schedules required for all
organizations
 Describe exempt accomplishments and
mission upfront and more opportunities
throughout the form to explain activities
 Significant disclosures throughout the form

21
The Form 990(cont’d)
Number of voting members and number of
independent voting members
 Number of volunteers and employees
 Unrelated business revenue and UBTI
 Prior year and current year information
presented for revenue and expenses
 Prior year and current year summary
balance sheet
 Sign page 1

22
The Form 990(cont’d)
Statement of top 3 program service
accomplishments - description, revenue
and expenses(page 2)
 Checklist of required schedules A-O, R
(page 3/4)
 Current compensation provided to former
O, D, T,KE and 5 highest paid(5 year lookback)
 Tax-exempt bonds >$100,000

23
The Form 990(cont’d)
Excess benefit transactions
 Loans, grants or other assistance to/from
current or former O, D, T, KE or 5 highest
paid(over $100,000)
 Family members of O, D, T or KE direct or
indirect business relationship with the
organization

24
The Form 990(cont’d)
Detail schedule of non-cash donation
>$25,000 or any art, historical treasure etc.
 Liquidations, terminations or ceasing of
operations
 Related party disclosures
 Other tax compliance-forms 1099, W-2G,
payroll, 990-T
 Donor advised funds

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The Form 990(cont’d)

Governing body & management:
Answers contrary to conventional wisdom may
create a negative impression
Changes to organizing documents
Material diversion of organization’s assets
Meeting minutes or the like
Was the board provided a copy of Form 990
before it was filed

Describe the process, if any, the organization uses to
review Form 990
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The Form 990(cont’d)

Governing body & management (cont’d):
Written conflict of interest policy
Whistle blower policy
Document retention and destruction policy
Rebuttable presumption for setting
compensation for CEO and others
Do you make your governing documents, COI
and financial statements available to the public
and if so, how?
27
The Form 990(cont’d)

Governing body & management (cont’d):
If your f/s were compiled, reviewed or audited
do you have a committee that assumes
responsibility for the f/s and selection of an
independent accountant
Are you required to have an audit because of a
Federal award?
28
The Basics of Nonprofits –
How They Differ From For-Profits
NPOs
 Broad spectrum of services






and programs
Fulfill public charitable mission
Over 1.6 million in the US
including religious
organizations
Donations can be taxdeductible
Board Generally Controls
Exempt from most, but not all,
taxes
Profits are called surplus or
change in net assets
For-Profits
 Segregated by industry






sectors
Profits benefit shareholders
and owners/executives
Millions of entities, LLC’s,
LLP’s, Partnerships, Sole
Proprietors, Corporations,
Trusts, etc.
Shareholders have the final
say
Capital contributions/
investment returns are taxable
Subject to most Federal,
State, and local taxes
Profits are called Net Income
29
The Basic Differences in Financial
Statements
NPOs
 Statement of Financial




Position – Assets, Liabilities,
and Net Assets
Statement of Activities or
Revenues and Expenses
Statement of Cash Flows
Statement of Functional
Expenses by Program, may
include revenue by program
as well
Change in Net Assets are
included in Statement of
Activities
For-Profits
 Balance Sheet – Assets,
Liabilities, and
Stockholders’/Owner’s
Equity
 Income Statement
 Statement of Cash Flows
 No comparable statement,
generally information is in
footnotes or supplemental
schedules
 Statement of Change in
Stockholders’/Owner’s
Equity
30
What do you need to know
about financial statements?
What are all these pages?







Independent auditor’s report
Balance Sheet
Statement of activities and change in net assets
Statement of functional expenses(sometimes
includes revenue)
Statement of cash flows
Footnotes
Other supplemental schedules
31
Key Financial Indicators
 Variance analysis
 Actual - budget
 Current - prior year
Liquidity – measure adequacy of
current assets to meet current
obligations
 Current ratio = current assets/current liabilities
 Days cash on hand = cash balance divided by
daily expenses
 Days in A/R = accounts receivable divided by
daily revenue balance
32
Key Financial Indicators (Cont’d)
Key Account Balances
 Cash balance
 Line-of-credit balance
 Leverage ratio measures how much
protection the organization’s assets
provide for the debt held by creditors
 Liabilities to net assets
33
Key Financial Indicators (Cont’d)
 Other
 Program vs. M&G vs. Fundraising expenses as a %
of total expenses
 Fundraising dollars raised to dollars spent
Mature-$2.5-$3 raised/spent
Minimum goal $1.25-$1.50 raised/spent
 Diversification of revenue sources
 Revenue as a % of total assets
 Programs that generate surpluses vs. deficits
34
Profit Importance
 “Rainy day” funds
 Capital investment
 Debt repayment
 Program Expansion/Subsidies
 Reserves for future funding
changes/challenges
 “No money, no mission”
35
Resources for NPO’s
 AICPA Nonprofit Audit Committee Toolkit www.cpa2biz.com
 NYS AG’s Website www.charitiesnys.com
 Guidestar www.guidestar.org
 Boardsource www.boardsource.org
 Association of Certified Fraud Examiners www.cfenet.com
 Association of Audit Committee Members www.aacmi.org
 IRS www.irs.gov/charities-&-non-profits
Center for Community Engagement www.cce-rochester.org
Executive Order #38 http://executiveorder38.ny.gov
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