Financial Management

Nonprofits have an obligation to act as responsible stewards in managing their financial resources. Nonprofits must comply with all legal financial requirements related to financial matters. They should adhere to sound accounting principles that ensure fiscal responsibility and build public trust. Nonprofits should use their financial resources to accomplish their missions in an effective, efficient manner and should establish clear policies and practices to regularly monitor how funds are used.

A nonprofit board member should clearly understand how to read and interpret financial statements and the audit or financial review reports.

A nonprofit should keep complete, current, and accurate financial records with supporting documentation in a manner that complies with standard accounting practices from FASB or GASB.

A nonprofit has a legal and ethical obligation to expend funds responsibly and must ensure that funds are dispensed according to the funders’ wishes and requirements.

Infrastructure Checklist

Required

	Yes	No	In Progress	Not Applicable	Not Sure
Applicable IRS 990 Form US
Appropriate categorization of donated funds—unrestricted, temporarily restricted or permanently restricted (990) US
Audit, if organization spends over $750,000 of federal money/grants (Office of Management & Budget Uniform Guidance; 990) US
Bulk-rate postage permit, if applicable US
Compliance with conditions placed upon donations (990) US
Financial records & destruction policy (Sarbanes-Oxley Act of 2002; 990) US
Financial supporting documentation—i.e., grant applications, sales slips, paid bills, invoices, receipts, deposit slips, cancelled checks (Internal Revenue Code §501(c)(3)) US
IRS Form 1099-MISC, if applicable (Internal Revenue Code §501(c)(3)) US Houston Chronicle: Do Nonprofits Need to Issue 1099s? NPO Accounting Blog: 1099 Tips
Personal use of assets/funds policy (Internal Revenue Code §501(c) (3), §4958) US Legal Information Institute: 26 USC § 4958 - Taxes on excess benefit transactions
Qualify as a public charity under “Public Support Test” or “Facts & Circumstances Test” (Revenue Code §170(b) (1) (A) (VI), §509(a) (1); 990) US
Unrelated business income tax (UBIT) reporting, if applicable (Internal Revenue Code §501(c) (3)) US
Whistleblower policy (Sarbanes-Oxley Act of 2002; 990) US
Lobbying expense policy & procedures, if applicable (Lobbying Disclosure Act of 1995; Neb. Rev. Stat. §49-1483.03; Iowa Code §68B.37; 990) US, NE, IA
Payroll—federal, state & local quarterly withholding/filings US, NE, IA
File biennial report (by April 1st, in odd years) with Secretary of State (Neb. Rev. Stat. §21-125; Iowa Code §504.1613) NE, IA
Prohibition on loans to board members/officers (Neb. Rev. Stat. §21-1988; Iowa Code §504.834) NE, IA

Strongly Recommended

	Yes	No	In Progress	Not Applicable	Not Sure
Accounts receivable and billing procedures
Asset & cash management policies & procedures
Audit, financial review, or compilation
Bank reconciliations
Board review & approval of budget
Board review & approval of tax filings & audits
Budgets (revenue/expenses)
Cash disbursements—accounts payable procedures
Chart of accounts
Credit card policy & procedures
Directors & officers liability insurance
File tax exemption on personal property of the organization. Check with your county to see if applicable. (i.e., Permissive Exemption in Douglas County, NE http://www.dcassessor.org/faq-help)
Internal control procedures
Monthly financial statements with balance sheet Main Financial Statements Required by US GAAP Financial Resources
Procurement & purchasing policies
Signature authority

Recommended

	Yes	No	In Progress	Not Applicable	Not Sure
Appropriate use of benchmarks/industry standards
Audit committee policies & procedures
Board-approved, written financial management policies & procedures
Board-approved, written investment plan
Board-approved, written risk management plan
Bookkeeping software
Cash flow projection
Contract management policies & procedures (bidding system, contracts, evaluation & monitoring tools)
Documentation from donors when restricted funds are received
Documentation of accounting policies and systems—meet Financial Accounting Standards Board (FASB) and/or Government Accounting Standards Board (GASB) requirements
Expense reimbursement policy & procedures, including cash @dvance
Financial reserve policy (target of 3-6 months)
Investment policy
Mail handling & receipt of funds procedures
Petty cash policy
Prohibition on loans to key employees
Spending limits policy

Practices Assessment

Reporting & Oversight

	No/Not Begun	In Process	Yes/ Complete	Not Applicable	Not Sure
We comply with all financial reporting and tax laws, including withholding and payment of federal and state income taxes, Social Security payroll taxes and unrelated business tax reporting (if applicable). US
We clearly and appropriately categorize our donated funds as unrestricted, temporarily restricted or permanently restricted in our financial statements and communications in accordance with the donor or grantor wishes/stipulations. US
We have an annual audit, financial review, or compilation. (Audit required if spent over $500,000 of federal money/grants) US
Our annual tax returns and tax exemption documents are available to the public. US
We qualify as a public charity either under the “public support test” or the “facts and circumstances test” or by qualifying as a supporting organization to another public charity. US
We file our biennial report with the Secretary of State on time. NE, IA
We keep complete, current and accurate financial records with supporting documentation in a manner that complies with standard accounting practices from FASB or GASB.
We generate accurate, relevant and consistent financial reports which include the comparison of actual to budgeted revenue and expenses, and which identify and explain any significant variances.
Board members understand how to read and interpret financial statements and the audit or financial review reports.
We provide training to all board members on how to read and understand nonprofit financial statements, including an audit or financial review report.
The board reviews financial reports at least quarterly.
The board reviews and approves the organization’s budget annually.
Financial audits are approved by the board and certified by the Executive Director and CFO.
We have an audit committee of the board that does not share members with, and works independently of, the finance committee.
In the audit process, the auditor is given the opportunity to meet with the board separately from management and staff.

Policies & Plans

	No/Not Begun	In Process	Yes/ Complete	Not Applicable	Not Sure
We have a policy in accordance with federal law to handle, store and destroy financial records and supporting documentation. US
We have a whistle-blower protection policy in place that allows individuals to report financial misconduct without consequence for doing so. US
We do not allow personal use of organizational funds or business credit cards. US
We have a board-approved lobbying expense policy and follow all procedures and filings required by law (if applicable). US, NE, IA
Financial loans to staff or board members are strictly prohibited. NE, IA
We have a board-approved financial management policy that is periodically reviewed and updated.
We have a board-approved risk management plan that is periodically reviewed and updated.
We have a board-approved investment plan that is in accordance with all legal requirements and is periodically reviewed and updated.
We have a board-approved credit card policy for the organization.
We have a clear expense reimbursement policy for the organization.
We have contract management policies & procedures appropriate for the size and activities of our organization (if applicable).
We have a clear procurement and purchasing policy, including signature authority, for the organization.
We ensure separation of specific financial duties as a system of checks and balances to the extent possible given the size of our organization.
We have appropriate internal controls and procedures to monitor and record assets received, held and expended.
Our annual budget devotes a significant portion of resources to programs that pursue our mission. It also provides sufficient resources for effective administration and for fundraising activities (if applicable).
The board considers applicable industry benchmarks for expenditures on programs, administration and fundraising.
We plan for a balanced budget. If a budget deficit occurs, the board is informed in a timely manner and participates fully in determining a plan to restore the budget to a balanced state.
We maintain a financial reserve equal to three to six months of operating expenses.
We project, monitor and adjust cash flow as needed to ensure appropriate cash flow.
The funds we raise are used solely for the benefit of the organization.
We expend funds responsibly and ensure that funds are used according to funders’ wishes and requirements.
We do not consider bequests, planned gifts and pledges when determining the annual budget and do not include these dollars in budgeting for program expenditures until the gift is actualized.
We work towards diversifying our funding sources as much as possible in an effort to strengthen the organization’s sustainability and to lessen the impact of a potential loss of a significant amount of funding from any one source.
When undertaking responsibility of fiscal sponsorship for another organization, we do so only with board approval and full knowledge of its legal obligations and liabilities.

Walking the Talk

• Monitor the cost of managing multiple funding sources and the overall ratio of the benefit vs. services delivered. A $10,000 program grant that costs you $7,500 to manage may not be worth the investment of staff time.
• While each board must determine the appropriate budget needed to achieve its mission, various industry benchmarks provide target ranges of 65-80% of expenditures for programs, and 20-35% for administration, fundraising and evaluation.
• Frame financial reports with relevant data points for comparison. A simple monthly statement of revenue and expenditures means nothing if not put in the context of year to date projections vs. actual activity. Explain variances in a relative context as well: a variance of $10,000 is worth consideration and deliberation if it equals 30% of your total budget but demands less attention if it represents 3% of a line item. Accuracy is important, but numbers put in context are too.
• Ensure that your board members are trained to read and understand your financial statements. They are legally accountable for your organization’s finances and it is your mutual responsibility to make sure they can fully meet their obligations.
• Before a crisis occurs, discuss contingency options for the event of a budget deficit. Investigate a line of credit, and determine which programs/services could be minimized or temporarily discontinued if cost-cutting measures are needed.
• In your annual fund development planning, develop a strategy to build a reserve fund to sustain your operations during low cash-flow months and to provide for program expansion and enhancements.
• Develop a policy and procedures regarding the acceptance and valuation of gifts of property to the organization.
• If appropriate, identify a legal expert with nonprofit experience to help you investigate and understand the difference between fiscal agency and fiscal sponsorship before engaging in such a relationship.