What is a Not-For-Profit

Organization?

Attributes

Organized for charitable purposes, as defined

by its MISSION!

◦ Type 1 Organizations that serve the public good

(e.g.: health care, education, social services,

culture, etc.)

◦ Type 2: Organizations that serve both the public

good and their members (e.g.: churches, public

interest or advocacy groups, civic leagues)

◦ Type 3: Organizations that serve their members

only (e.g.: business/trade associations, social

clubs, labor unions)

For-Profit vs. Nonprofit

• Mission

• Capitalization

• Rewards

• Revenues

• Investors vs. Contributors

Can Nonprofits “Profit”?

Reasonable amount to accomplish

its mission

◦ How is that determined?

BBB – unrestricted assets up to the

following business year, and no more than

3X current or next year’s expenses,

whatever is higher.

IRS – No maximum set, but states that

nonprofit organizations must spend AT-

LEAST 5% of their fair market value of

assets annually

Challenges in Financial

Management

Organizational Requirements

• Strong financial management resources,

both human and material;

• Procedures and methodologies to generate

key indicators of its financial status, account

for overhead costs, and alert staff about

available cash as well as shortfalls; and

• Systems to effectively communicate

financial information among financial and

nonfinancial staff.

Essential Practice for Sound

Financial Management

1. Understand the true costs of all

programs (Overhead)

2. Monitor the financial status of on

an ongoing basis

3. Meet expenses in a timely manner.

Components of an Effective

Financial Management

Structure

• Resources

• Information

• Processes

• Core Management Practices

• Financial Objectives

• Organizational Goals

Indicators of Financial Health

1. Absence of Reoccurring Annual

Deficits

2. Cash Reserves

3. Ratio of Liquid Assets

4. Concentration of Government

Funding

Span of Financial

Responsibilities

Administrative Functions

Tax Compliance, Accounting Procedures, Computers, Filing System, Staffing, Auditing, Internal Controls

Financial Data• Checkwriting• Deposits• Bank

Reconciliations• Book Keeping

Reporting• Balance Sheet• Income

Statement• IRS Form 990• Reports to

Funders

Management• Investments• Cash Flow• Cost Analysis• Cost

Allocation• Managing

Expenses

Monitoring• Comparing

Budget to Actual s

• Comparision of Fiscal Periods

Planning• Purpose• Setting Goals

& Objectives• Environmenta

l Assessment• Budget

Preparation

Governance

Governance

By-Laws:

- By-Laws are established to define

the purpose and mission of the

organization. It also usually defines

◦ Board size,

◦ Composition,

◦ Officers,

◦ Terms,

◦ Role and Authority.

Governance

Responsibility of the Board of Directors

◦Oversight and control of resources

Fiduciary Responsibility

◦Govern, direct organizational affairs,

but not operate organization.

◦ Selects others to manage day-to-day

operations, usually represented by a

chief executive officer, executive

director, etc.

Board Responsibilities

• Required to exercise caution and prudence in establishing policies and making decisions

• Respect and adhere to organizational documents

• Duty of Care and Duty of Loyalty

Duty of Care• Exercise independent judgment

• Be informed as to data relevant to decisions

• Regularly attend meetings

• Monitor organization’s activities,

• Assess effectiveness of organizational structure,

• Provide for both short and long term planning

• Review internal and external financial reports to

evaluate fiscal condition,

• Assure that funds are spent for appropriate

organizational purposes,

• Compare actual results with approved budgets

Duty of Loyalty

• Act with trustworthiness and integrity

• Actions should be in alignment with the mission and purpose of the organization, and the constituents it serves

• Not take advantage of organizational assets for personal gain (conflict of interest)

Contact Information

John F.X. Prior, MSW, LCSW

Adjunct Professor

Springfield College

School of Professional and Continuing

Studies

jprior@springfieldcollege.edu